Defendants-Appellants James Truesdale and Ronald Hamilton appeal from the district court's denial of their joint application for reimbursement of attorney's fees. We affirm.
This case revisits the story of an offshore sports wagering enterprise that is well-chronicled in one of our previous opinions. See United States v. Truesdale, 152 F.3d 443 (5th Cir. 1998). Defendants-Appellants James Truesdale and Ronald Hamilton ("Appellants"), along with two others, were indicted and tried on multiple charges, including conspiracy, money laundering, and conducting an illegal gambling operation. There was evidence at trial that bets were placed over toll-free numbers that terminated in offices offshore, where such activity is legal; however, toll-free numbers also terminated at Appellants' homes, but these lines were used for information purposes only. There was also evidence that Appellants received money in Texas to establish betting accounts, that they deposited the money received in Texas bank accounts, and that they paid winners out of accounts held in Texas. Appellants and their co-defendants were convicted of several of the charges, including conducting an illegal gambling operation. On direct appeal, we reversed their convictions on all counts. See id. at 450.
(C) a scheme by three or more persons to receive, record, or forward a bet or an offer to bet.
Tex. Penal Code § 47.01(2) (A)-(C).
Under Texas law "bookmaking" is illegal, and if a person intentionally or knowingly commits "bookmaking," he commits the offense of gambling promotion. Tex. Penal Code § 47.03(a) (2). Bookmaking, however, is not the only activity that constitutes gambling promotion. Section 47.03(a) lists five separate categories of activity (including "bookmaking") each of which can constitute gambling promotion. Section 47.03(a) makes it a separate offense for an individual, for gain, to "... become [ ] a custodian of anything of value bet or offered to be bet [.]" Tex. Penal Code § 47.03(a) (3). In this case, neither the indictment nor the jury charge nor the government's argument alluded to this section. The indictment only mentioned bookmaking and the jury charge only tracked the language of sections 47.01(2) and 47.03(a) (2).
Truesdale, 152 F.3d at 446-47. The evidence in the case indicated "that the bookmaking activities occurred outside the United States" and not in the state of Texas, as § 1955 requires. Id. at 447. There was evidence that Appellants had the capability to accept bets in Texas and that callers attempted to place bets in Texas, and a notebook seized at Hamilton's residence could have indicated that bets were being taken in Texas. However, the opinion notes that Appellants went to great lengths to ensure that their business was conducted legally. See id. at 448. In sum, "the circumstantial evidence . . . [did] not furnish an adequate basis from which a reasonable juror could conclude beyond a reasonable doubt that the appellants were engaged in bookmaking." Id. at 448-49. We indicated that there may have been some evidence that Appellants became custodians of gambling money in violation of section 47.03(a) (3), but the government did not indict them on that section, try them on that section, or instruct thejury on that section.
Following our decision, Appellants' co-defendants moved the district court for reimbursement of attorneys' fees under the so-called Hyde Amendment,1 and Appellantssoon followed suit. The district court denied their co-defendants' motion, which denial was never appealed, and it further denied Appellants' motion in an order entered on December 22, 1998. Appellants filed a notice of appeal ("NOA") on January 20, 1999, twenty-nine days after the district court's order was entered. Before reaching the merits of Truesdale and Hamilton's appeal, we must decide whether their NOA was timely filed.
II. APPELLATE JURISDICTION: RULE 4(a) OR 4(b)?
Federal Rule of Appellate Procedure 4 governs the time period during which an NOA may be filed. "A timely notice of appeal is necessary to the exercise of appellate jurisdiction." United States v. Cooper, 135 F.3d 960, 961 (5th Cir. 1998) (citing United States v. Robinson, 361 U.S. 220, 224 (1960)). Simply put, if a notice of appeal is untimely, we cannot entertain the merits of a case. In order to establish the timeliness of the NOA filed in the instant appeal, we must begin by determining whether it is governed by Rule 4(a)2 or Rule 4(b).3 Only one other court of appeals has addressed this issue. In United States v. Robbins, the Court of Appeals for the Tenth Circuit held that an appeal from a district court's denial of a motion filed under the Hyde Amendment is governed by Rule 4(b). See 179 F.3d 1268, 1270 (10th Cir. 1999).
At the outset, what is most important here is to establish a clear rule governing NOAs in cases like this one. Unfortunately, however, the text of the Hyde Amendment does not clearly establish whether Rule 4(a) or 4(b) should apply. A compelling case can be made that Rule 4(b) should apply to this case and others like it. The Hyde Amendment clearly states that "the court, in any criminal case . . . may award to a prevailing party . . . a reasonable attorney's fee . . . ." Pub. L. No. 105-119, § 617, 111 Stat. 2440, 2519 (1997), reprinted in 18 U.S.C. app. § 3006A (Supp. III 1997) [hereinafter "Hyde Amendment"]. This language can be read as signaling that a Hyde Amendment motion arises in a criminal case. See Robbins, 179 F.3d at 1270. On the other hand, the language can be read as simply signaling that the provision is intended to provide relief when, "in any criminal case . . . the court finds that the position of the United States was vexatious, frivolous, or in bad faith." Id. The latter reading does not necessitate the conclusion that the motion itself is a part of the underlying criminal case. For the reasons that follow, we conclude that the latter reading is appropriate. We are consequently unable tojoin the Tenth Circuit's conclusion and decide that Rule 4(a) governs an appeal from a district court's ruling on a motion filed under the Hyde Amendment.
Citing United States v. Young, 966 F.2d 164, 165 (5th Cir. 1992), and United States v. De Los Reyes, 842 F.2d 755, 757 (5th Cir. 1988),4 the government argues that, like a motion to correct sentence under Federal Rule of Criminal Procedure 35, "a motion for reimbursement of attorney's fees and costs, pursuant to the Hyde Amendment, should be considered part and parcel of the criminal matter rather than a separate civil proceeding." Government's Brief at 19. The government provides no support for this argument, and after comparing a motion under the Hyde Amendment to a Rule 35 motion, we cannot agree. A Rule 35 motion deals directly with the movant's liberty interest, precisely the sort of consideration that has been cited to support the shorter filing period under Rule 4(b). See United States v. Craig, 907 F.2d 653, 656 (7th Cir. 1990) ("The shorter time limit for criminal appeals furthers the public interest in the prompt resolution of criminal proceedings. Neither the interests of society nor of individual criminal defendants are served by a plodding appellate process that could change the results of a trial, often while the defendant has already begun to serve a sentence of incarceration."). A motion under the Hyde Amendment, on the other hand, does not implicate the movant's liberty interest. Indeed, as we discuss shortly, the interests it implicates are identical to those implicated by a motion for attorney's fees under 28 U.S.C. § 2412, the Equal Access to Justice Act (the "EAJA"), the procedures and limitations of which, with a few exceptions, are made applicable to proceedings under the Hyde Amendment. The longer time period provided in Rule 4(a) applies to proceedings under the EAJA. We find the comparison of a motion filed pursuant to the Hyde Amendment to one filed under the EAJA a closer analogy than the Rule 35 comparison provided by the government on brief.
We have in the past used this sort of analogy to decide which Rule 4 time period to apply. For example, United States v. Cooper, 876 F.2d 1192 (5th Cir. 1989), dealt with a petition for a writ of error coram nobis. We determined that such a petition was equivalent to a motion under 28 U.S.C. § 2255, the difference being that a § 2255 motion is made by a person in federal custody and a petition for a writ of error coram nobis is filed by a person who has been released. We explained that the rules governing § 2255 cases state specifically that Rule 4(a) applies to such motions, see Rule 11 Governing § 2255 Proceedings for the United States District Courts, 28 U.S.C. app. § 2255 (1994), and concluded that Rule 4(a) should apply to an appeal from the denial of the petition, just as the Rules Governing § 2255 Proceedings specifically apply Rule 4(a) to an appeal from a denial of a § 2255 motion. Two cases cited by Appellants from the Court of Appeals for the Seventh Circuit similarly apply Rule 4(a) after comparing the proceeding at issue to a § 2255 proceeding. See Betts v. United States, 10 F.3d 1278 (7th Cir. 1993) (petition for a certificate of innocence); United States v. Craig, 907 F.2d 653 (7th Cir. 1990) (petition for a writ of error coram nobis).
Finally, it could prove problematic for the government were we to hold that a motion filed pursuant to the Hyde Amendment is part and parcel of the underlying criminal case and therefore subject to the Rule 4(b) filing period. As a general rule, the government cannot, without statutory authority, appeal from a decision in a criminal case. See United States v. Sanges, 144 U.S. 310, 312 (1892). While the question is not before us, we are aware of no statute that authorizes the government to appeal from a ruling on a motion for an award of fees in a criminal case.6 We anticipate that holding as the government argues would create a situation in this circuit where a movant would be entitled to appeal from an adverse ruling on a motion filed pursuant to the Hyde Amendment, but the government would not be afforded the same privilege. We cannot imagine that the Congress intended such a result and are unwilling, absent clearer statutory direction, to establish precedent in this circuit lending support to such an outcome. If Congress had indeed desired these sorts of proceedings to be treated as part and parcel of the underlying criminal case, we would have expected a path to have been established for the government to appeal. We conclude that Rule 4(a) applies to an appeal from a ruling on a motion pursuant to the Hyde Amendment.
Having so decided, we are left with one last jurisdictional question: Is the NOA in this case fatally premature? Rule 4(a) (1) (B) provides that when the United States is a party to a civil case, the NOA "may be filed . . . within 60 days after the judgment or order appealed from is entered." Rule 4(a) (2) provides that an NOA "filed after the court announces a decision or order--but before the entry of the judgment or order--is treated as filed on the date of and after the entry." Under Rule 4(a), entry occurs "when [the judgment or order] is entered in compliance with Rules 58 and 79(a) of the Federal Rules of Civil Procedure." Fed. R. App. P. 4(a) (7).
Federal Rule of Civil Procedure 79(a) requires that the decision of the district court be recorded on the civil docket. Here, the ruling below was recorded on the criminal docket. It has therefore never been entered in strict compliance withRule 4(a) (7), and an argument can be made that an appeal is not perfected under Rule 4(a) (2) until so entered. Neither party has argued, however, that our appellate jurisdiction is defeated by the failure of the clerk of the district court to record the ruling in this case on the civil docket, and we can see no reason why our jurisdiction should be so defeated. Were we to dismiss this action for lack of jurisdiction, "the district court would simply [enter its judgment on the civil docket], from which a timely appeal would then be taken. Wheels would spin for no practical purpose." Bankers Trust Co. v. Mallis, 435 U.S. 381, 385 (1978). We find it unnecessary to dismiss this action for two reasons.
First, what is important is that the judgment of the district court be final,7 which it obviously was in this case, and the appellee, the government here, not be misled or prejudiced by the fact that the judgment was recorded on the criminal docket. See Mallis, 435 U.S. at 387; Firstier Mortgage Co. v. Investors Mortgage Ins. Co., 498 U.S. 269, 276 (1991). The government was neither misled nor prejudiced in this case.
Second, in the past we have not found our jurisdiction defeated by a judment being entered on the wrong docket. In Smith v. Smith, 145 F.3d 335 (5th Cir. 1998), we were confronted with an appeal from a criminal contempt ruling that was entered on the civil docket. We determined that we did not need to decide whether Rule 4(a) or 4(b) applied, because the notice of appeal was timely in either case. See id. at 339. Implicit in that decision was a determination that the entry of judgment on the civil docket did not defeat jurisdiction if the case was criminal and Rule 4(b) applied. It follows that the converse should hold true in this case, and we determine that we have jurisdiction to entertain the appeal.
Awards made pursuant to the Hyde Amendment "shall be granted pursuant to the procedures and limitation (but not the burden of proof) provided for an award under [the EAJA]." Hyde Amendment, supra. The proper standard of appellate review is not one of the procedures and limitations of the EAJA, but the language of the Hyde Amendment indicates Congress' intent to have proceedings under the Hyde Amendment treated similarly to those under the EAJA. While the language quoted above does not conclusively determine the proper standard of review, the tie-in between the two provisions lends support to finding that the same standard applies in both situations.
provides that attorney's fees shall be awarded "unless the court finds that the position of the United States was substantially justified." 28 U.S.C. § 2412(d) (1) (A) (emphasis added). This formulation, as opposed to simply "unless the position of the United States was substantially justified," emphasizes that the determination is for the district court to make, and thus suggests some deference to the district court on appeal.
Pierce, 487 U.S. at 559. The Hyde Amendment similarly provides that "the court . . . may award . . . a reasonable attorney's fee . . . where the court finds that the position of the United States was vexations, frivolous, or in bad faith . . . ." Hyde Amendment, supra (emphasis added). The similar language in the Hyde Amendment supports deference to the district court's decision as well.
The Court in Pierce also considered whether "'one judicial actor is better positioned than another to decide the issue in question.'" 487 U.S. at 560 (quoting Miller v. Fenton, 474 U.S. 104, 114 (1985)). The Court noted that some aspects of the government's litigating strategy may be known only to the district court. Also, the circuit court may have to spend inordinate time becoming more familiar with the record than is usually required for appeals in order to evaluate not only the merits of the case, but also the government's litigating strategy. While the Hyde Amendment deals with criminal cases rather than civil cases, we find these considerations weigh equally in favor of applying a deferential level of review in Hyde Amendment appeals. The district court is much more familiar with the ins-and-outs of the case, and its judgment will often reflect its unique perspective. Applying a less deferential standard of review would show disrespect for that unique perspective.
Finally, the Supreme Court recognized that flexibility was needed in the area in order for the "substantially justified" standard to develop. " [T]he question . . . is . . . little susceptible, for the time being at least, of useful generalization, and likely to profit from the experience that an abuse-of-discretion rule will permit to develop." Id. at 562. The "vexatious, frivolous, or in bad faith" standard of the Hyde Amendment, along with the "for good cause shown" standard that governs whether the court may receive evidence in camera and ex parte, will similarly benefit from the experience envisioned by the Supreme Court in Pierce. We conclude that an abuse of discretion standard should apply to appeals from judgments in Hyde Amendment proceedings.
Legal determinations underlying the district court's decision are, however, reviewed de novo. See Spawn v. Western Bank-Westheiner, 989 F.2d 830, 839 (5th Cir. 1993). "As Judge Friendly has stated, ' [i]t is not inconsistent with the discretion standard for an appellate court to decline to honor a purported exercise of discretion which was infected by an error of law.'" Id. (quoting Abrams v. Interco, Inc., 719 F.2d 23, 28 (2d Cir. 1983)).
We begin by disposing of Appellants' argument that the Hyde Amendment entitles them to discovery and a hearing as a matter of right. For this proposition, Appellants cite United States v. Gardner, 23 F. Supp. 2d 1283 (N.D. Okla. 1998). There, however, the court explained that the movant had requested discovery and the government opposed that request. See id. at 1295-96. That is not the case here. Appellants do not allege that they moved for discovery or a hearing in the district court, and our independent review of therecord likewise reveals no such motion. The scope of discovery allowable or required upon request of a movant for attorney's fees pursuant to the Hyde Amendment is therefore not an issue we need address in this case. We must decide only whether the district court abused its discretion by ruling on Appellants' motion without granting discovery or a hearing, despite the fact that neither was requested.
the after-the-fact exercise required under [the Hyde Amendment] to determine justification for prosecution. . . . There may be evidence that was relied upon in good faith by the prosecution in coming to its decision to prosecute, but was later suppressed at trial; there may be disclosure or required disclosure and compromise of confidential sources or law enforcement techniques . . . .
Id. at H7793 (remarks of Representative Rivers). See also Gilbert, 198 F.3d at 1300-01.
Appellants assert that Representative Rivers's remarks were made at a time when the government was expected to bear the burden of proof under the Amendment. They argue that the burden was changed to the defendant, yet the Amendment still provides for the confidential submission of evidence. They conclude that it "stand [s] to reason that Congress intended for the claimant to have access to evidence except such evidence which is confidential, and such evidence is to be presented to the court in camera." Appellants' Brief at 21-22. We disagree. It appears the provision for in camera review of evidence was included to enable the government to defend itself against Hyde Amendment motions and at the same time protect confidential information. We do not read the Amendment as providing for discovery and a hearing as a matter of right.
28 U.S.C. § 2412(d) (1) (B) (1994). The government argues that this provision is a procedure contained in the EAJA, and that it is therefore incorporated into the Hyde Amendment, except to the extent that the latter provides otherwise. The government contends that the language of the Hyde Amendment "suggests that a district court has latitude to permit an expansion of the record, for good cause, beyond that available under the EAJA, while at the same time providing necessary safeguards." Government's Brief at 31. The government's reading of the Amendment seems reasonable, but we need not today determine the situations under which discovery or a hearing is allowed or required, assuming either is allowed at all. It is clear that the Amendment, especially when read in conjunction with the EAJA, does not provide for discovery or a hearing as a matter of right. The district court, therefore, did not abuse its discretion in ruling on Appellants' motion without first affording them an opportunity for discovery or a hearing, because no motion for either was ever filed with the court.
Both parties argue that in order to recover attorney's fees as a prevailing party, the Appellants bear the burden of proof under the Hyde Amendment to show by a preponderance of the evidence that the government's position was vexatious, frivolous, or in bad faith. We agree. The Hyde Amendment provides that awards under it "shall be granted pursuant to the procedures and limitation (but not the burden of proof) provided for an award under [the EAJA]." Hyde Amendment, supra. It is clearly established that, under the EAJA, the government bears the burden of proof with regard to its litigating position. See United States v. 5,507.38 Acres of Land, 832 F.2d 882, 883 (5th Cir. 1987). The language of the Hyde Amendment expresses a desire to shift that burden to the movant. The only other court of appeals that has addressed this issue agrees that the movant bears the burden of proof. See Gilbert, 198 F.3d at 1304.
Under the EAJA, the government must prove by a preponderance of the evidence that its position was substantially justified. See United States v. One Parcel of Real Property, 960 F.2d 200, 208 (1st Cir. 1992). The Hyde Amendment changes only the party with whom burden of proof lies, not the level of proof by which the claim must be established. We conclude that a party moving for an award of attorney's fees under the Hyde Amendment must establish by a preponderance of the evidence that the government's position was vexatious, frivolous, or in bad faith.
The EAJA directs courts to award "to a prevailing party other than the United States fees and other expenses . . . incurred by that party in any civil action . . . unless the court finds that the position of the United States was substantially justified or that special circumstances make an award unjust." 28 U.S.C. § 2412(d) (1) (A) (1994) (emphasis added). The Supreme Court has interpreted the phrase substantially justified to mean "justified to a degree that could satisfy a reasonable person." Pierce, 487 U.S. at 565. The Court equated a substantially justified position with one having a "reasonable basis in law and fact." Id. at 566 n.2. The Hyde Amendment, on the other hand, allows a district court in a criminal case to "award to a prevailing party, other than the United States, a reasonable attorney's fee and other litigating expenses, where the court finds that the position of the United States was vexatious, frivolous, or in bad faith, unless the court finds that special circumstances make such an award unjust." Hyde Amendment, supra (emphasis added). Appellants suggest that, other than the switched burden of proof, the standards in the EAJA and the Hyde Amendment are the same; a movant may succeed under the Hyde Amendment if he establishes that the prosecution was not substantially justified. The language of the two provisions and the legislative history prove otherwise.
The Hyde Amendment, as originally introduced on the floor of the House, made attorney's fees available absent special circumstances making such an award unjust, "unless the court finds that the position of the United States was substantially justified." 143 Cong. Rec. H7786-04, H7791 (daily ed. Sept. 24, 1997). In discussing the proposed Amendment, Representative Hyde drew parallels between it and the EAJA. As far as the standard applicable in such proceedings, he stated that the Amendment "ought to protect anybody who is abused by a suit that is not substantially justified. . . . What is the remedy, if not this, for somebody who has been unjustly, maliciously, improperly, abusively tried by the Government . . . ." Id. at H7792. Representative David Skaggs responded to these comments, stating, "I think the gentleman proves too much. Were the words 'malicious' and 'abusive' inhis amendment, and maybe those are criteria that also ought to be introduced, it would be a different matter." Id. The standard was eventually changed to "vexatious, frivolous, or in bad faith" in the Conference Committee. See Gilbert, 198 F.3d at 1301-02. This change signifies Congress' desire to limit the scope of the Amendment. A movant under the Hyde Amendment must prove more than just that the government's position was not substantially justified. See id. at 1302, 1304; cf. Pierce, 487 U.S. at 566 ("To be 'substantially justified' means, of course, more than merely undeserving of sanctions for frivolousness . . . .").
The district court seems to have agreed with Appellants' position. It held that a motion filed pursuant to the Hyde Amendment can succeed only if the movant can "establish that the government did not possess sufficient evidence that could satisfy a reasonable person to believe that the prosecution . . . had a reasonable basis in law and fact." Memorandum Opinion and Order denying a motion by Richard Jones and Sandra Miller, filed December 7, 1998, at 4, incorporated by reference in Order filed Dec. 22, 1998. This conclusion was based on the district court's ruling that, "because the procedures and limitations of the EAJA apply to the Hyde Amendment, a prevailing party is not entitled to an award if the government's position in the litigation was 'substantially justified.'" Id.
We disagree with the district court that a movant need only prove that the government's position was not substantially justified, i.e. that "a reasonable person considering the government's evidence could [not] find that the prosecution of defendants had a rational basis in both law and fact." Id. at 5. As previously explained, the "vexatious, frivolous, or in bad faith" standard is more demanding on a movant than the "not substantially justified" standard. The district court was correct, however, that if a movant is unable even to establish that the prosecution was not substantially justified, he certainly cannot establish that it was vexatious, frivolous, or brought in bad faith. The district court here concluded that Appellants failed to establish that the government's prosecution of them was not substantially justified. If the district was correct in this conclusion, then it did not abuse its discretion in denying Appellants' Hyde Amendment motion, which calls for an even more demanding standard.
Appellants first argue that the government knew, or should have known, that they were not engaged in bookmaking in Texas, and that, therefore, the government's prosecution of them was vexatious and frivolous. According to Appellants, the government's star witness testified that no bets were taken in Texas. Appellants argue that this case "was clearly a situation where [a Dallas police officer involved in the case] was saying that the F.B.I. contended that the operation was illegal, and the F.B.I. was saying that they were relying on [the Dallas police officer's] training and experience in illegal gambling operations." Appellant's Brief at 33. Appellant's own description sounds more of confusion and sloppiness than vexatiousness or frivolousness. This conclusion is supported by the government's argument that there was some evidence that Appellants had broken state gambling laws by becoming custodians of gambling proceeds, but the government neglected to proceed on this theory, arguing instead only that Appellants broke state law by engaging in bookmaking.
In reaching its conclusion that Appellants had failed to establish that the government's position was not substantially justified, the district relied on evidence that toll-free numbers terminated at Appellants' homes, Appellants paid out winnings from Texas bank accounts, the notebook found in Hamilton's house contained betting information, several callersattempted to place bets with federal agents on the toll-free lines terminating at Appellants' homes, and certain documents seized from Truesdale's home contained possible betting information. The district court had previously tied the "not substantially justified" standard to the "vexatious, frivolous, or in bad faith" standard, and it ruled that " [a]lthough this evidence was insufficient for a reasonable jury to find beyond a reasonable doubt that [Appellants] had engaged in bookmaking operations in Texas, it was sufficient evidence to indicate that the government's prosecution of Truesdale and Hamilton was neither vexatious, frivolous, nor in bad faith." Order filed Dec. 22, 1998, at 2. While we disagree with the standard the district court applied, we agree that Appellants failed to establish even that the government's position was not substantially justified. "To be substantial, evidence must be relevant and sufficient for a reasonable mind to accept as adequate to support a conclusion; it must be morethan a speck or scintilla but it need not be a preponderance." Taylor v. Bowen, 782 F.2d 1294, 1298 (5th Cir. 1985). Because Appellants failed even to establish that the government's prosecution of them was not substantially justified, they cannot establish that the prosecution was vexatious, frivolous, or in bad faith. The district court, therefore, did not abuse its discretion in denying Appellants' motion.
During fiscal year 1998 and in any fiscal year thereafter, the court, in any criminal case (other than a case in which the defendant is represented by assigned counsel paid for by the public) pending on or after the date of the enactment of this Act, may award to a prevailing party, other than the United States, a reasonable attorney's fee and other litigation expenses, where the court finds that the position of the United States was vexatious, frivolous, or in bad faith, unless the court finds that special circumstances make such an award unjust. Such awards shall be granted pursuant to the procedures and limitations (but not the burden of proof) provided for an award under section 2412 of title 28, United States Code. To determine whether or not to award fees and costs under this section, the court, for good cause shown, may receive evidence ex parte and in camera (which shall include the submission of classified evidence or evidence that reveals or might reveal the identity of an informant or undercover agent or matters occurring before a grand jury) and evidence or testimony so received shall be kept under seal. Fees and other expenses awarded under this provision to a party shall be paid by the agency over which the party prevails from any funds made available to the agency by appropriation. No new appropriations shall be made as a result of this provision.
Pub. L. No. 105-119, § 617, 111 Stat. 2440, 2519 (1997), reprinted in 18 U.S.C. app. § 3006A (Supp. III 1997).
Rule 4(a) provides, in pertinent part, that, " [i]n a civil case, . . . the notice of appeal . . . must be filed with the district clerk within 30 days after the judgment or order appealed from is entered." Fed. R. App. P. 4(a) (1) (A). This time period is extended to 60 days when the United States is a party. See Fed. R. App. P. 4(a) (1) (B).
Rule 4(b) provides, in pertinent part, that, " [i]n a criminal case, a defendant's notice of appeal must be filed in the district court within 10 days after . . . the entry of either the judgment or the order being appealed . . . ." Fed. R. App. P. 4(b) (1) (A).
In each of those cases, the defendant appealed from the district court's disposition of a motion to correct sentence under Rule 35 of the Federal Rules of Criminal Procedure, and in both cases, the notice of appeal was filed outside of the window allowed by Rule 4(b) but inside the window allowed by Rule 4(a). We recognized that " [a]n appeal from a ruling on a Rule 35 motion is considered part of the original criminal proceeding and must be taken within the ten days provided by [Rule 4(b)]." De Los Reyes, 842 F.2d at 757. We also recognized in each case that the same motion could have been raised in a proceeding under 28 U.S.C. § 2255, in which case the sixty-day window in Rule 4(a) (1) (B) would have applied. Citing "the liberality accorded to pro se filings," id., we decided to treat the ill-styled motions as § 2255 motions and found jurisdiction to entertain the appeals.
We agree that application of the Rule 4(a) appeals period is not a procedure contained directly within the text of the EAJA. But, as we see it, Congress' direction that the procedures of the EAJA should apply to proceedings under the Hyde Amendments evinces its intent that, absent statutory direction to treat the proceedings differently, the case giving rise to the motion for an award of fees does not control, and Hyde Amendment proceedings and EAJA proceedings should be conducted in a like manner.
We suspect that because of the Tenth Circuit's construction of 28 U.S.C. § 3731, which authorizes the government to appeal in certain criminal cases, this concern was not apparent to the panel that decided Robbins. Compare United States v. Prescon Corp., 695 F.2d 1236, 1240 (10th Cir. 1982) (section 3731 authorizes any government appeal from a final order that does not implicate the Double Jeopardy Clause) with United States v. Denson, 588 F.2d 1112, 1125, adopted en banc, 603 F.2d 1143, 1145 (5th Cir. 1979) (section 3731 only authorizes appeals from order similar to those in it).
"For a ruling to be final, it must end the litigation on the merits and the judge must clearly declare his intention in this respect." Firstier Mortgage Co. v. Investors Mortgage Ins. Co., 498 U.S. 269, 273-74 (1991) (citations and internal quotation marks omitted).
In United States v. Gilbert, the Court of Appeals for the Eleventh Circuit, the only other circuit court to consider the proper standard of review for Hyde Amendment cases, likewise determined that an abuse of discretion standard was appropriate. See 198 F.3d 1293, 1298 (11th Cir. 1999).
We therefore need not address the issue of whether the Hyde Amendment provides relief if just a portion of the government's prosecution is vexatious, frivolous, or brought in bad faith.


text:
CLARIDGE APARTMENTS CO. v. C.I.R.
Mr. John E. Hughes, of Chicago, Ill., for petitioner.
The issues arise out of deficiency assessments made in respect to petitioner's federal income and excess profits taxes for the years 1935 to 1938 inclusive. They involve the applicability of Section 270 of the Bankruptcy Act, as amended,1 so as to require reduction of depreciation allowances claimed. [323 U.S. 141, 143] The transactions arose in connection with a reorganization proceeding under Section 77B, 48 Stat. 912, 11 U.S.C.A. 207. They consisted essentially of petitioner's acquisition of all the assets of the insolvent debtor corporation, by an exchange of its capital stock, without pay value for the latter's bonds then outstanding. The Commissioner contends that the exchange resulted in a cancellation or reduction of indebtedness within the meaning of Section 270, so as to require a corresponding reduction in the basis of the property transferred. Accordingly he now urges that the assessment should be made, as the section requires, upon the basis of the fair market value of the property. 2 The taxpayer's claim is made on the higher basis of the debtor corporation, in the view that Section 270 is not applicable to such a transaction.
This difference has been the basic one between the parties in proceedings before the Tax Court,3 the Circuit Court of Appeals and here. Others include a similar question with respect to the extinction of the debtor's liability for the accrued unpaid interest on the bonds and whether Section 270 is made applicable retroactively to the years prior to 1938, by virtue of the provisions of Section 276, sub. c(3) of the Chandler Act, 11 U.S.C.A. 676, sub. c(3).4 [323 U.S. 141, 144] The Tax Court decided the principal issue on the merits in favor of the taxpayer, except with respect to the accrued interest. Cf. also Capento Securities Corp. v. Commissioner, 47 B.T.A. 691, affirmed, 140 F. 2d 382. It likewise limited the application of Section 270 to the year 1938 and succeeding years. 1 T.C. 163. The Court of Appeals reversed the Tax Court's decision in both respects, holding there was a cancellation of indebtedness with respect to the unpaid principal5 and that Section 270 was applicable retroactively to require the prescribed reduction in basis for each of the tax years in question. 138 F.2d 962. Certiorari was granted, 321 U.S. 759 , 64 S.Ct. 788, because of the importance of the questions presented and a conflict on the question of retroactivity. 6 The facts are stated shortly in the margin, to give concrete perspective. 7 [323 U.S. 141, 145] I.
Petitioner earnestly argues that the Tax Court's decision, so far as this was in its favor, should be affirmed on the authority of Dobson v. Commissioner, 320 U.S. 489 , 64 S.Ct. 239, though in other respects it seeks a reversal of that court's judgment. 8 For reasons presently to be stated, we think the case must be disposed of in its entirety by the application of Section 276, sub. c(3), which determines the extent to which Sections 268 and 270 are applicable in point of time. Accordingly, we are not required to pass upon the merits of the other interesting issues or whether they fall within the Dobson admonition. On the other hand, the question of the applicability of Sections 268 and 270, under the terms of Section 276, sub. c(3), to the transactions involved in this case obviously is one of law and of a sort not requiring the specialized experience of the Tax Court to determine. Furthermore, it involves making an accommodation between the conflicting policies, in part, of the bankruptcy laws and the revenue enactments. Sections 268 and 270 are integral parts of the former, though related in subject matter to the latter, and were so placed for purposes relevant primarily to that legislation. For these reasons the issue falls beyond the scope of the Dobson case. [323 U.S. 141, 146] II.
By and large the provisions are the product of and have reflected efforts at compromise, none too successful, between the conflicting pulls of policy involved in the revenue acts and in the bankruptcy legislation. They were drawn and enacted however as parts of the revenue laws and have reflected increasingly the policy of that legislation. 12 Accordingly, the succession of statutes relating to this field, prior to Sections 268 and 270, represents a series of shifts in the legislative pendulum from initial broad tax relief, to encourage needed reorganizations, toward narrowed exemption, in order to discourage use of reorganization for evasion of taxes. The general purpose of the provisions, however, was to postpone the tax consequences which otherwise might ensue upon transactions occurring in such circumstances that immediate imposition was regarded as economically unjustifiable. 13 This continued in the 1934 general revision,14 which remained in effect during the period of this litigation.
In some respects, as compared with the preexisting legislation, the 1934 provisions broadened, but in others they restricted the scope of application of the principles of nonrecognition and transfer of basis. 15 Nevertheless, [323 U.S. 141, 148] they were applicable to all exchanges falling within their terms, whether or not the plan was executed in connection with a judicial proceeding. Consequently, when in June, 1934, Section 77B was adopted, the 1934 revenue provisions became applicable to reorganizations under that section, but only if they met the tests prescribed in the revenue acts, including such judicially interpolated matters as 'continuity of interest' and 'business purpose.' 16 Many 77B reorganizations did not qualify under these tests or on substantial grounds were thought not to do so.
The consequence was seriously to clog the use of the 77B procedure. Obstacles were imposed not only by the differences in the two statutory definitions of 'reorganization,' but also by ambiguities in each definition which in themselves created considerable areas of uncertainty. 17 And underlying these remained the mystery of when income would be regarded as realized, which continued to haunt reorganizers unsure of whether they could bring themselves within the statutory exemptions. In short, the necessity of squaring the reorganization first with Section 77B, then with the different terms of the revenue provisions, and the uncertainties involved under each statute in doing this, added to the puzzle of 'realized income,' made the process of creditors' reorganization under the former act a highly dubious adventure. To an undetermined extent [323 U.S. 141, 149] the effect of the revenue act's provisions was to nullify or make impossible of realization the objects of Section 77B.
In this setting Congress adopted the Chandler Act in 1938. That statute was a general revision of the provisions for bankruptcy reorganization, including those previously made under Section 77B. One of its principal objects was to encourage the freer use of bankruptcy reorganization in order to avoid unnecessary or premature liquidations. By this time Congress had become aware of the hazardous and hampering effects of the 1934 revenue provisions upon the operation of bankruptcy reorganizations under Section 77B. The objectives of the Chandler Act, in similar situations, could not be achieved without removal of these impediments. Some provision was essential to prevent them from having the same effects upon the working of the new legislation. Accordingly Section 268 was devised for this purpose and became a part of the Chandler Act itself. It had no other object, and there was no other occasion for its being, than to free Chapter X reorganizations from the tax deterrents, including tax uncertainties, imposed by the existing revenue act provisions.
The relieving effect of Section 268 was confined in three ways, namely, (1) to transactions occurring in a Chapter X reorganization; (2) to transactions involving a modification or a cancellation, in whole or in part, of the debtor's indebtedness; and (3) its benefits were limited to the debtor corporation, the trustee, if any, provided for in the plan, and the successor or transferee corporation. Within these limitations the section provided that 'no income or profit, taxable under any law ... shall ... be deemed to have accrued to or to have been realized by ...' the parties specified, and thus removed Chapter X transactions from incidence of the uncertainties characterizing the general 'reorganization' provisions. One who followed the procedure could be assured he would [323 U.S. 141, 150] not thereby run into tax consequences which would be worse than the economic illness requiring that cure.
As it was originally considered by the House Committee, the Chandler Act contained no counterpart of the present Section 270. Had Section 268 thus been left to stand alone, with no accompanying provision for 'basis,' either there would have been no applicable provision for 'basis' or the general 'basis' provisions would have remained applicable to Chapter X reorganizations falling within their terms, with the result that they would apply to some Chapter X reorganizations but not to others. The latter view apparently was generally accepted. Under it much of the previous uncertainty would have remained, but with its focus shifted from 'realized income' to 'basis.' Moreover, it was the view of Treasury officials, apparently in the assumption of continued transfer of 'basis' under the general provisions, that the effect of Section 268 would be to provide a double deduction in some cases,18 unless complemented by a corresponding 'basis' provision, and thus be unfair to the revenue.
Accordingly the Treasury, and others, made various proposals,19 which eventuated in the adoption of Section 270 in its original form. This provided for transfer of basis, as did the code provisions, but required that it be decreased by the amount of the reduction of indebtedness, a measure at variance with the terms of the code. It was from the requirement of reduction, and the measure provided for it, that new difficulties were derived. Although the only occasion for making a further provision concerning basis arose from the adoption of Section 268 and although the legislative history discloses the purpose of Congress exactly [323 U.S. 141, 151] contrary to placing Chapter X reorganizations at radical disadvantage from others, the literal effect of the original Section 270 came near if not entirely to wiping out the whole benefit conferred by Section 268.20 Soon it was realized that literal application of the specified new measure of reduction would require decrease of basis in many instances to zero or even to a point below zero, because the amount of the debt cancelled or reduced would equal or exceed the value of the property or that assigned to the basis transferred. Thus, any tax benefit derived from Section 268, in such cases, would be more than offset by the higher taxes resulting in later years from the absence of any depreciation base and in case of sale of the property acquired. And in cases where no benefit could be derived from Section 268, the effect of applying Section 270 was, if not to impose a capital levy,21 then to deny the new owners equal treatment, not only with other transferees under the code provisions, but with all other taxpayers.
Congress, in view of its original object in adopting Section 268, could not possibly have intended such consequences for Section 270. The cure was worse than the disease. 22 The legislative history gives the clear impression that adoption of the original Section 270 was a plain blunder, the consequences of which were not foreseen, understood or intended by those who finally gave it the form of law. 23 [323 U.S. 141, 152] Legislative relief obviously was in order and was forthcoming at the next session of Congress, in the amendment of Section 270 adding the language giving it its present form. 24 The amendment removed some, but not all of the uncertainty confronting Chapter X reorganizers. It placed a floor to the amount of reduction required. In no case would basis be reduced below fair market value. But this was only partial cure of the original infirmities. Above the floor, debt cancellation remained the measure of reduction, thus keeping Chapter X reorganizations generally at a disadvantage with those taking place under the code. But, what was more important, the chief hazard remained, namely, whether Section 270 was intended to operate only where Section 268 was effective to afford actual tax benefit or, as the Government contends, regardless of whether such relief was afforded. And in this case the hazard has been realized in assessment.
With this background we turn to Section 276, sub. c(3). By their own terms Sections 268 and 270 apply only to transactions arising in connection with proceedings 'under this chapter,' that is, Chapter X of the Chandler Act. The instant transactions arose in proceedings, not under Chapter X, but under Section 77B, which had been closed by final decree [323 U.S. 141, 153] March 1, 1937. The Chandler Act became effective September 22, 1938. Accordingly, Sections 268 and 270, of their own force, are not applicable to these transactions. If they are so at all it is by virtue of Section 276, sub. c(3), which the Government says must be construed to extend their operation retroactively to include these facts. This petitioner disputes.
'(3) sections 268 and 270 of this Act shall apply to any plan confirmed under section 77B before the effective date of this ammendatory Act and to any plan which may be confirmed under section 77B on and after such effective date, except that the exemption provided by section 268 of this Act may be disallowed if it shall be made to appear that any such plan had for one of its principal purposes the avoidance of income taxes, and except further that where such plan has not been confirmed on and after such effective date, section 269 of this Act shall apply where practicable and expedient.' (Emphasis added.) 52 Stat. 905, 11 U.S.C.A. 676, 11 U.S.C.A. 676.
Three constructions have been advanced. Shortly stated they are that Sections 268 and 270 apply to transactions involved in 77B proceedings (1) only if the proceedings were pending September 22, 1938; (2) only for 1938 and later tax years, but including transactions in proceedings closed before September 22, 1938; (3) for all tax years from 1934 forward as to transactions in all proceedings in which a plan had been or should be confirmed, regardless of whether the proceedings were pending or had been closed on September 22, 1938. [323 U.S. 141, 154] The petitioner advances the first two views, alternatively; the Government the third. The Government interprets the italicized language as if it were wholly disconnected from and unrelated to the preceding portions of Section 276, sub. c, in other words, as an entirely independent provision unlimited by its statutory context. Petitioner, on the other hand, regards it as merely a part or phase of Section 276, sub. c,25 and thus reaches the exactly contrary view of its meaning. The statute, it says, refers in the first paragraph of 'c' to 'proceedings pending' under 77B and, to quote the brief, 'exceptions (1), (2) and (3) are keyed into this first paragraph and refer to pending proceedings also. They merely except from the pending cases those to which 77B is not to apply. Since sub. c deals only with pending cases and not closed cases, they refer also to pending cases.' The Government concedes there is force in this [323 U.S. 141, 155] view, though it suggests, we think untenably,26 that the question is doubtfully open. The Court of Appeals accepted the Government's view, the Tax Court the alternative or second view advanced by the taxpayer. We think neither can be accepted and that the effect of Section 276, sub. c(3) is to confine the application of Sections 268 and 270, in 77B proceedings, to proceedings pending when the Chandler Act became effective.
If Sections 268 and 270 were to be applied to all reorganizations completed under Section 77B, literally they would cover all such transactions running back to 1934, when the latter section was enacted. As to proceedings closed when the Chandler Act took effect, this would involve disturbance of tax consequences already settled for five years, unless cases are excepted where the statute of limitations had run. 27 We have no means of knowing how much resurrection of old claims or generation of new ones in respect to settled matters this would create. Nor did the authors of [323 U.S. 141, 156] the Chandler Act. But, from the circumstances of the time and the very necessities which brought about adoption of Section 77B, the volume must have been considerable.
The language does not require such unlimited construction. The words are not directed expressly to past tax years. Nor are they focused upon transactions in closed proceedings. It is true that Section 276, sub. c(3), if construed as though it were entirely independent of the remainder of Section 276, sub. c, does not refer explicitly to pending 77B proceedings, except in its concluding clause. Yet it is part and parcel of that section, which in all other respects deals only with pending and future proceedings, not with closed ones. And the concluding clauses of (3) afford additional evidence that it was intended to apply only to plans confirmed or to be confirmed in pending proceedings, as does also its setting in the context of Section 276 as a whole. 29 [323 U.S. 141, 157] Thus Section 276, in subsections a, b and c (excepting only Section 276, sub. c(3)), deals exclusively with pending or future proceedings. Congress' concern in 'a' was that Chapter X should apply notwithstanding the substantive rights of debtors, creditors and others had arisen before the effective date of the Act. In 'b' it was that the pendency of bankruptcy and receivership proceedings should not defeat resort to the Chandler Act's provisions; in 'c' it was with an accommodation of the provisions of Sections 77A and 77B and those of the Chandler Act as to pending proceedings. Apart from Section 276, sub. c(3), therefore, the whole [323 U.S. 141, 158] problem treated in Section 276 was to give the Chandler Act as wide room as possible for future operation, notwithstanding the previous vesting of substantive rights or institution of bankruptcy or reorganization proceeding. Congress was concerned with the Act's future operation, as a remedial provision, not as a method of creating new and retroactive substantive rights and liabilities.
This being true, it is difficult to understand why Congress might wish to follow exactly the opposite policy with reference to newly created substantive tax rights and liabilities. It would seem wholly incongruous to imply such a purpose in the absence of language unquestionably requiring it, both as a matter of general legislative policy and, more especially, as one of accommodation with the purposes of the particular legislation. In short, apart from subdivision (3), relating to tax incidents of reorganization, all of Section 276 was devoted entirely to matters affecting pending and future proceedings. We can find reason for no other view than that this was true also of the provisions for application of the new tax features.
This is borne out by the concluding clauses of Section 276, sub. c(3) itself, which provide for exceptions to its operation. The second exception in terms relates only to pending proceedings. It contemplated future confirmation exclusively. The first exception, standing alone, literally could be applied in the case of a closed proceeding. But reaching such cases was not a necessary reason for including it. Such a reason existed, however, in the necessity for covering plans already confirmed in pending proceedings, unless parties then reorganizing under Section 77B were to be treated differently from others reorganizing at the same time under Chapter X. The two exceptions thus dovetailed to provide complete coverage for disallowing the exemption given by Section 268 in pending proceedings. They comprehended distinct situations and provided dif- [323 U.S. 141, 159] ferent sanctions,30 all however consistent with application only in pending proceedings. Thus the entire language of Section 276, sub. c(3) was capable of full and complete application, although confined to pending proceedings. To give it greater scope, retroactively, is required neither by the terms nor by the purposes of the specific provision or others related to it in context or by reference.
That the narrower application was the intended one seems most apparent when the nature of the problem with which Section 276, sub. c(3), sought to deal is considered. There was no problem, arising from enactment of the Chandler Act, with reference to closed 77B proceedings. And there was no reason originally, when Section 268 stood alone, for giving the relief it afforded to taxpayers involved in such proceedings. Nothing in the legislative history of Section 268, or of Section 270, shows any concern, intent or occasion for dealing with such taxpayers. The whole desire related rather, as has been shown, to taxpayers who might be adversely affected by the general revenue provisions in taking advantage of the Chandler Act.
However, that Act itself created another problem, namely, how far its terms should apply in pending 77B proceedings. Congress decided that the Chandler procedure should be followed as far as possible, though not to the extent of displacing the 77B procedure in reorganizations far advanced. 31 The same policy was framed for other chapters. Consequently Sections 276, sub. c(1) and (2), were [323 U.S. 141, 160] included, as were also comparable provisions in other chapters. 32 With them in, the problem was presented whether the Chandler Act's tax relief provisions, including Sections 268 and 270, should apply also in the pending 77B proceedings and, if so, to what extent-only to those converted into Chandler Act proceedings by Section 276, sub. c(1), or also to those partially converted under Section 276, sub. c(2) by an exercise of judicial discretion and those falling within 276, sub. c(2) but so nearly completed or otherwise situated that application of the Chandler Act in any respect would be impracticable and therefore 77B would continue exclusively effective.
Although these pending 77B proceedings, and particularly those nearing completion, having been already begun, were generally without the scope of the encouragement Sections 268 and 270 were intended to give to persons contemplating reorganization, Congress undoubtedly felt it would be unfair to give the relief to taxpayers following the Chandler Act procedure, but deny it to persons following that of 77B at the same time. To make this discrimination might force conversion of pending 77B proceedings into Chapter X proceedings, solely on account of tax consequences, where but for them such conversion would not be proper or desirable. Accordingly, by Section 276, sub. c(3) Congress extended the tax relief provided by Sections 268 and 270 also to pending 77B proceedings in order to put persons continuing 77B reorganization on the same basis with others proceeding under Chapter X. There was no other occasion or object for the extension.
In view of these considerations both of context and of consequence, we do not think Section 276, sub. c(3) can be regarded as applicable to closed proceedings. The purpose rather, as in the other provisions of Section 276, was to look to the future and in doing so to make the necessary adjustment, so far as was possible, between the provisions of the Chandler [323 U.S. 141, 161] Act and preexisting laws as to proceedings pending when the former took effect. Thus construed, Section 276, sub. c(3) becomes consistent, both in form and in the purpose and effects of applying the new tax provisions, with the other provisions of Section 276 and with the general policy of the Chandler Act as to applicability of its terms. 33 Any other view would make Section 276, sub. c(3) a unique provision in the statute's setting and one inconsistent with, if not also contradictory to, the Act's general purposes and the limited objects of the particular provisions immediately in issue.
Further support for this view would seem to be afforded, when the consequences of applying it or the contrary one to similar provisions appearing in other chapters of the Chandler Act34 are taken into account. If those pro- [323 U.S. 141, 162] visions are to be given retroactive application comparable to what the Government says should be given to Sections 268, 270 and 276, sub. c(3), the disruption of settled tax situations, by virtue of the Chandler Act's adoption, may be multiplied many times over what would follow from giving such an effect only to Sections 268, 270 and 276, sub. c(3). Although the immediate consequences of decision in this case are limited to the specific effects of these sections, it is at least doubtful that they could be given a different construction, as to retroactive application, from what might be given to the comparable sections of other chapters. The possibility that uniform interpretation may be required gives pause, at least, before adopting a view in this case which, if extended to the other provisions, would open so wide a door for retroactive taxation.
As against this interpretation, the Government's argument rests primarily on two bases: (1) that the words of Section 276, sub. c(3) require its construction; and (2) that unless this is given, discriminations as to tax consequences will be created between taxpayers involved in closed proceedings and those in pending and future ones, with the result that mere speed in getting the proceedings pending prior to September 22, 1938, to a final decree would determine whether taxpayers equally deserving would be afforded the relief provided by Sections 268 and 270.
The answers are obvious. In the first place, the wording of Section 276, sub. c(3) does not require the Government's con- [323 U.S. 141, 163] struction. That view can be taken only if subdivision (3) is torn, formally and substantively, from its context in the statute and the problems with which these surrounding provisions, including Sections 268 and 270, undertook to deal. Thus to treat the provision not only would disregard the purposes of all these related provisions. It would convert subdivision (3), in its practical application, into an entirely independent tax measure, solely in the nature of an amendment to the general revenue legislation, and with the harshest retroactive tax consequences. This in fact seems to be the Government's view of the character of the legislation. 35 But that view wholly disregards the fact that neither Sections 268 and 270 nor Section 276, sub. c(3) had any purpose originally or later merely to produce larger revenues or to operate exclusively as revenue measures. It is true they modified the preexisting revenue provisions, so far as they were applicable by their terms to do so. But this was a function of their primary object, which was to give relief to parties undertaking reorganization, not simply to impose new and different taxes upon them, much less to do so with respect to transactions long since settled [323 U.S. 141, 164] both as to taxes and as to reorganization. The objects of Section 276, sub. c(3) cannot be ignored or distorted by thus stripping the provision, formally and substantively, from its statutory setting and the limitations this clearly imposes.
So far as respects the Government's concern over the possible discriminations which will be created between taxpayers by acceptance of petitioner's view, it is perhaps enough to say that some such discrimination is inevitable with whatever solution may be accepted; and we think what follows from applying Sections 268 and 270 only to 'pending proceedings' not only is preferable to any other but is most consistent with the normal course of legislation. Retroactivity, even where permissible, is not favored, except upon the clearest mandate. It is the normal and usual function of legislation to discriminate between closed transactions and future ones or others pending but not completed. The discrimination which the Government fears will follow from acceptance of the taxpayer's view admittedly will result. But it is one consistent with the normal consequences of legislation in the drawing of a line between the past or the present and the future. It also was one necessary for Congress to make if it were not to make another or others equally bad or worse. The Government's concern in this case is not that the taxpayer will suffer harsher discrimination under petitioner's construction than under its own. It is rather that he will not suffer it. For, as interpreted by the Government,36 Sections 268, 270 and 276, sub. c(3) applied in conjunction would be much more likely to produce new, and retroactive, tax burdens than tax benefits. The present case in an illustration. To this the Government might be entitled if the statutory mandate were clear. It cannot have that [323 U.S. 141, 165] advantage by dubious construction which ignores so much of the statute's setting, purpose and history. The letter does not require this. The consequences forbid it.
There remains for consideration the refusal of the Court of Appeals to reverse the findings of the Tax Court as to the original cost of the apartment building and the propriety of deductions claimed in 1937 for decorating expenses. 37 The Tax Court, in arriving at the cost of the building, refused to allow an alleged ten per cent contractor's commission paid to the debtor company's principal promoter and original sole shareholder because it was not convinced by petitioner's witness 'that any amount was actually paid by the old company for contractor's services. ... ' 1 T.C. 163, 175. The Tax Court also concluded, after hearing vague testimony on two small deductions in 1937 for decorating and repairs, that these were not properly taken, because the same deductions for the same purposes had been claimed and allowed in 1936. These issues were well within the principle of the Dobson case. The Tax Court was upheld in these respects by the Court of Appeals and we accept these findings.
Accordingly, the judgments are reversed and the causes are remanded to the Circuit Court of Appeals for further proceedings in conformity with this opinion.
[ Footnote 1 ] Bankruptcy Act of July 1, 1898, c. 541, 30 Stat. 544, as amended by the Act of June 22, 1938, c. 575, 52 Stat. 904, and the Act of July 1, 1940, c. 500, 54 Stat. 709, 11 U.S.C. 668, 670, 11 U.S.C.A. 668, 670. Section 270 is complementary to Section 268, with which originally it was enacted as part of Chapter X of the Chandler Act. The two sections are as follows, the italicized portion of 270 constituting the whole of the amendment made in 1940.
[ Footnote 2 ] Cf. note 1 supra. Originally the Commissioner contended that the taxpayer's basis for depreciation was the market value of the property on acquisition in 1935 and this was a major issue before the Tax Court, cf. 1 T.C. 163. But the Tax Court held petitioner had acquired the assets in connection with a reorganization as comprehended by Section 112(g) of the Revenue Act of 1934, 26 U.S.C.A. Int.Rev.Acts, page 695, and that therefore its basis was the adjusted basis in the hands of the debtor corporation. This ruling was not contested on appeal and is not in question here.
[ Footnote 4 ] The section is set forth in Part III of the opinion.
[ Footnote 5 ] Consequently it made no ruling with reference to the accrued interest, since the amount of the principal held to have been 'cancelled' was more than sufficient to bring the basis down to the fair market value in 1935.
[ Footnote 6 ] Cf. Commissioner v. Commodore, 6 Cir., 135 F.2d 89, holding that Section 276, sub. c(3) does not make Sections 268 and 270 retroactively applicable to tax years prior to 1938. The importance of the questions for the future has been minimized by repeal of Section 270 by Section 121 of the Revenue Act of 1943, Pub.L. 235, 78th Cong., 2d Sess., 26 U.S.C.A. Int. Rev.Code, 113(a)(22).
[ Footnote 7 ] The property consists of an apartment building, with furnishings, in Chicago. It was constructed in 1924 by the Claridge Building Corporation at a cost in excess of $385,000. The corporation at that time issued its 6 1/2 per cent first mortgage bonds for $340,000. By October 1, 1931, the bonds outstanding amounted to $277,000. In consequence of defaults, on that date the trustee filed his bill of foreclosure, took possession of the property, and thereafter collected the rents. A decree for foreclosure was entered the following February, but there was no sale and the foreclosure proceeding was never consummated.
On June 16, 1934 the Building Corporation filed its voluntary petition under Section 77B. In November of that year a plan of reorganization was agreed upon, which was confirmed and approved May 14, 1935. Pursuant to this the taxpayer corporation was organized and the property was transferred to it. Ninety per cent of its shares were issued to trustees for depositing bondholders and to nondepositing bondholders, on the basis of one share of stock for each $100 face amount of bonds; and ten per cent of the stock was issued to the shareholders in the old corporation. The final decree in the Section 77B proceeding was entered March 1, 1937.
According to findings of the Tax Court, the fair market value of the building, as of May 14, 1935 (when the plan was confirmed, cf. 270, note 1 supra), was not in excess of $141,000. The adjusted basis of the taxpayer's predecessor in that year was $239,377.33, at which time the building had a remaining useful life of twenty-five years. The fair market value of petitioner's stock did not exceed $45 per share in 1935. The Tax Court also found that the Claridge Building Corporation was insolvant throughout the reorganization proceedings.
[ Footnote 8 ] Cf. text infra at note 37.
[ Footnote 9 ] Cf., e.g., Helvering v. American Dental Co., 318 U.S. 322 , 63 S.Ct. 577; Kramon Development Co., 3 T.C. 342; Paul, Debt and Basis Reduction under the Chandler Act (1940) 15 Tulane L.Rev. 1, 5, and authorities cited in notes 17, 19.
[ Footnote 10 ] Cf. Paul, op. cit. supra, note 9; Darrell, Discharge of Indebtedness and the Federal Income Tax (1940) 53 Harv.L.Rev. 977; Darrell, Creditors' Reorganizations and the Federal Income Tax (1944) 57 Harv.L.Rev. 1009; Banks, Treatise on Bankruptcy for Accountants (1939) 80-92.
[ Footnote 11 ] By assuming the existence of income or other taxable gain, but providing for nonrecognition, the inquiry whether gain or profit actually has accrued is wholly avoided.
[ Footnote 12 ] Cf. authorities cited note 10 supra.
[ Footnote 13 ] Cf. Paul, Studies in Federal Taxation, Third Series, 4, 5.
[ Footnote 14 ] 112, 113 of the Revenue Act of 1934, c. 277, 48 Stat. 680, 704, 706, 26 U.S.C.A. Int.Rev.Acts, pages 692, 696.
[ Footnote 15 ] E.g., Section 112(g) of the 1934 Act redefined what might be a reorganization under the revenue act. Thus Section 112(g)(1)(A) included only statutory mergers or consolidations as revenue reorganizations, but dropped the earlier parenthetical clause; Section 112(g)(1)(B) required that the acquisition of stock or property of another corporation be in exchange solely for all or a part of the voting stock of the acquiring corporation to qualify as a reorganization. Helvering v. Southwest Consolidated Corp., 315 U.S. 194 , 62 S.Ct. 546; cf. 112(b)( 5); Helvering v. Cement Investors, Inc., 316 U.S. 527 , 62 S.Ct. 1125.
[ Footnote 16 ] Cf. Helvering v. Alabama Asphaltic Limestone Co., 315 U.S. 179 , 62 S.Ct. 540, 543; Palm Springs Holding Corp. v. Commissioner, 315 U.S. 185 , 62 S.Ct. 544; Bondholders Committee, Marlborough Investment Co. v. Commissioner, 315 U.S. 189 , 62 S.Ct. 537; Helvering v. Southwest Consolidated Corp., 315 U.S. 194 , 62 S. Ct. 546; Darrell, Creditors' Reorganizations and the Federal Income Tax (1940) 57 Harv.L.Rev. 1009, 1017-1033.
[ Footnote 17 ] Ibid.
[ Footnote 18 ] Hearings before the House Committee on the Judiciary on H.R. 8046, 75th Cong., 1st Sess., 352-354; Hearings before Subcommittee of Senate Committee on the Judiciary on H.R. 8046, 75th Cong., 2d Sess., 137-139.
[ Footnote 19 ] See House Committee Hearings, 353-354; Senate Subcommittee Hearings, 145-146.
[ Footnote 20 ] H. Rep. No. 2372, 76th Cong., 3d Sess., 2-4; S. Rep. No. 1857, 76th Cong., 3d Sess., 1-5; Hearings before a special subcommittee on bankruptcy and reorganization of the House Judiciary Committee on H.R. 9864, 76th Cong., 3d Sess., 3, 5-11, 13-14, 16, 18-31, 54; cf. Paul, Debt and Basis Reduction under the Chandler Act (1940) 15 Tulane L.Rev. 1, 5.
[ Footnote 21 ] Cf. Darrell, Creditors' Reorganizations and the Federal Income Tax ( 1940) 57 Harv.L.Rev. 1009, 1016.
[ Footnote 22 ] Paul, Debt and Basis Reduction Under the Chandler Act (1940) 15 Tulane L.Rev. 1, 5.
[ Footnote 23 ] Hearings before the House Committee on the Judiciary on H.R. 8046, 75th Cong., 1st Sess., 352-354; Hearings before Subcommittee of Senate Committee on the Judiciary on H.R. 8046, 75th Cong., 2d Sess., 137-139, 145-146; Hearings before a special subcommittee on bankruptcy and reorganization of the House Judiciary Committee on H.R. 9864, 76th Cong., 3d Sess., 52-59, 66-67. A significant letter written by Congressman Chandler shortly after the passage of the Chandler Act was submitted at the 1940 Hearings (Hearings on H.R. 9864, at 52) and was received by the subcommittee into the record. For some reason it was not published in the record, although the Chandler letter was referred to in a letter which was published (Hearings on H.R. 9864, at 56). The Chandler letter may be found in Banks, Treatise on Bankruptcy for Accountants (1939) 84, 85.
[ Footnote 24 ] Cf. Note 1 supra.
[ Footnote 25 ] Petitioner's statement of the argument does not take account expressly of the obvious difference between what he calls 'exceptions (1) and (2),' on the one hand, and 'exception (3),' on the other. (1) and (2) are clearly true substantive exceptions to the general mandate of 'c.' That is, they provide instances in which Section 77B shall not continue to operate, contrary to the general provision of 'c' for its continued effectiveness in pending proceedings. Like effect however cannot be given to (3). It does not purport expressly to provide for nonoperation of 77B. Rather its force is to provide for an extended operation of Sections 268 and 270, with reference to 77B proceedings.
The formal difficulty however is more apparent than substantial. Nothing in (3) is at all inconsistent with its limitation to pending 77B proceedings. And the formal connection with 'c,' though awkwardly made, affords some evidence of purpose to limit the effects of (3) to such proceedings. The same consequence, however, would seem to be dictated, if the formal connection, as an 'exception' to 'c,' were disregarded and (3) were treated as a separate subsection, like the corresponding provisions of other chapters. Cf. note 35 infra. The substantive relationship with the subject matter and purposes of the preceding provisions of the section as a whole would remain. Cf. text infra Part III.
[ Footnote 26 ] It is true petitioner did not present this interpretation in the Court of Appeals or in the Tax Court. It was advanced as a question presented on the petition for a writ of certiorari, the matter has been argued here, and the Government does not claim surprise. The issue of retroactivity and proper interpretation of Section 276, sub. c(3) has been a focal point of the controversy in the Court of Appeals and in the Tax Court. Petitioner has maintained throughout that there was no tax deficiency for either 1938 or any prior year. Thus the issue has been presented at all stages, although a theory to sustain petitioner's position concerning it has been advanced here which was not put forward in prior stages of the litigation.
[ Footnote 27 ] It may be noted that the terms of Section 276, sub. c(3) make no provision concerning the statute of limitations. They apply literally to all prior 77B proceedings. The Commissioner and the Treasury have not interpreted the section to make Sections 268 and 270 apply beyond the time when the general statute has run. But this interpretation is not necessarily controlling, in the face of the breadth of the language used, if it is taken as unlimited by its context. No assessment was made in this case for 1934 because the petitioner corporation was not organized until 1935.
[ Footnote 28 ] Cf. Part II of this opinion.
'(3) sections 268 and 270 of this Act shall apply to any plan confirmed under section 77B before the effective date of this amendatory Act and to any plan which may be confirmed under section 77B on and after such effective date, except that the exemption provided by section 268 of this Act may be disallowed if it shall be made to appear that any such plan had for one of its principal purposes the avoidance of income taxes, and except further that where such plan has not been confirmed on and after such effective date, section 269 of this Act shall apply where practicable and expedient.' (Emphasis added.) 52 Stat. 905, 11 U.S.C. 676, 11 U.S.C.A. 676.
[ Footnote 30 ] I.e., refusal of confirmation where the plan had not been approved ( cf. 269) and disallowance of the tax exemption, if the plan had been confirmed. For tax purposes these come to the same result, a fact also indicative that both exceptions were intended to operate within the general limitation of pending proceedings.
[ Footnote 31 ] S. Rep. No. 1916, 75th Cong., 3d Sess., 39; Hearings before the House Committee on the Judiciary on H.R. 8046, 75th Cong., 1st Sess., 375- 376, 383; Hearings before Subcommittee of the Senate Committee on the Judiciary on H.R. 8046, 75th Cong., 2d Sess., 6, 7.
[ Footnote 32 ] Cf. note 34 and text infra.
[ Footnote 33 ] 'Except as otherwise provided in this amendatory Act, the provisions of this amendatory Act shall govern proceedings so far as practicable in cases pending when it takes effect; but proceedings in cases then pending to which the provisions of this amendatory Act are not applicable shall be disposed of conformably to the provisions of said Act approved July 1, 1898, and the Acts amendatory thereof and supplementary thereto.' Act of June 22, 1938, c. 575, 6, sub. b, 52 Stat. 940, 11 U.S. C.A. 1 note.
[ Footnote 34 ] Chapters XI, XII and XIII, 11 U.S.C.A. 701 et seq., 801 et seq., 1001 et seq., deal respectively with Arrangements, Real Property Arrangements by Persons Other Than Corporations, and Wage Earners' Plans. Each of these chapters embodies sections corresponding in principle to Sections 268, 270 and 276. Those comparable to Section 276 are Section 399 in Chapter XI, Section 526 in Chapter XII, and Section 686 in Chapter XIII. Each, like Section 276, contains the whole of an article entitled 'When Chapter Takes Effect.' Each contains four subsections (with a fifth in Section 686), corresponding to subsections a, b and c of Section 276 and subdivision c(3) of that section. Thus, Sections 399(4), 526(4), and 686(4) correspond to subdivision 276, sub. c(3). They differ from it however in that they are formally independent subsections, whereas Section 276, sub. c(3) is formally a part of Subsection 276, sub. c, dependent upon its general mandate, and thus perhaps even more clearly limited by the preceding provisions. Cf. note 25 supra.
Sections 268, 270 and 276, therefore, do not represent isolated instances of legislation peculiar to corporate reorganizations under Chapter X. They are rather particular instances of a general pattern of legislation, relating to a common problem running through Chapters X, XI, XII and XIII, namely, to what extent the Chandler Act's terms should be applied to pending reorganizations, arrangements, wage earners' plans, etc. Because of detailed differences in the situations affected, the provisions corresponding to Sections 268, 270 and 276 vary somewhat in detail. But the similarities rather than the variations, whether in situation or in terms, are significant for present purposes.
[ Footnote 35 ] Thus, in its brief the Government asserts, concerning petitioner's argument that Sections 268 and 270 apply only to 'pending' proceedings: 'This contention, although plausible, neglects the fact that Sections 268 and 270 are essentially tax provisions.' (Emphasis added.) To this it may be answered that the sections, in origin, purpose and function were 'essentially reorganization provisions' or, to put it differently, 'essentially tax relief provisions.' The Government's emphasis upon the sections as taxing measures ignores their primary object and function, which were to provide tax relief for parties undertaking reorganization and to prevent the clogging effects of the existing tax laws upon the operation of the Chandler Act. It also fails to note that retroactive application, in closed proceedings, could have no possible relation to the latter aim. The matter is one of emphasis. But it is not permissible, in construing provisions designed to encourage reorganizations, by giving relief from taxes, to take them by such an emphasis as if they were framed exclusively for raising revenue.
[ Footnote 36 ] That is, with Section 270 as operating independently of Section 268, to require reduction in basis even though no actual tax benefit has been derived under 268.
[ Footnote 37 ] Cf. text at note 8 supra.

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text:
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