Stearman v. Commissioner

United States Court of Appeals Fifth Circuit F I L E D Revised January 19, 2006 January 13, 2006 In the Charles R. Fulbruge III Clerk United States Court of Appeals for the Fifth Circuit _______________ m 05-60521 Summary Calendar _______________ WILLIAM C. STEARMAN, III, Plaintiff-Appellant, VERSUS COMMISSIONER OF INTERNAL REVENUE, Defendant-Appellee. _________________________ Appeal from a Decision of the United States Tax Court _________________________ Before SMITH, GARZA and PRADO, U.S.C. § 6673 for advancing frivolous posi- Circuit Judges. tions and maintaining the proceedings primari- ly for delay.1 Stearman also requests damag PER CURIAM: William Stearman, III, pro se, appeals the 1 On the certificate of service in his appellate judgment of the United States Tax Court dis- brief, Stearman styles himself as a “moron pro se missing his two consolidated cases for failure from hickville Texas” and urges this court to de- to state a claim and failure to prosecute and cide whether he “knows more about the tax sys- sanctioning him $12,500 per case under 26 (continued...) es under § 6673 against the Tax Court judge the time and resources of the Tax Court. Id. and opposing counsel in an amount “at least equal to the amount of the ‘judgment.’” We Stearman, like the plaintiff in Tello, failed affirm and grant the Commissioner’s motion to to appear at the call of the consolidated cases impose sanctions for maintaining a frivolous despite being sent a notice setting the case for appeal. trial and stating that “[HIS] FAILURE TO APPEAR MAY RESULT IN DISMISSAL I. OF THE CASE AND ENTRY OF DECI- We review de novo the dismissal for failure SION AGAINST [HIM].” Stearman did not to state a claim, Lowrey v. Tex. A & M Univ. explain his non-appearance. Sys., 117 F.3d 242, 246 (5th Cir. 1997), and review for abuse of discretion the dismissals Also, like the plaintiff in Tello, Stearman for failure to prosecute and the imposition of failed to cooperate in that he refused to com- sanctions under § 6673, Tello v. Comm’r, 410 ply with the Tax Court’s order to file, with F.3d 743, 744 (5th Cir.), cert. denied, 126 S. that court, his requests for admissions. The Ct. 381 (2005). Dismissals with prejudice for notice setting the case for trial stated that failure to prosecute are proper only where “[HIS] FAILURE TO COOPERATE MAY (1) there is a clear record of delay or contu- ALSO RESULT IN THE DISMISSAL OF macious conduct by the plaintiff and (2) the THE CASE AND ENTRY OF DECISION district court has expressly determined that AGAINST [HIM].” Stearman served a re- lesser sanctions would not prompt diligent quest for admissions on the government with- prosecution, or the record shows that the dis- out filing it with the Tax Court. The request trict court employed lesser sanctions that asked the government to admit that “‘Taxpay- proved to be futile. Tello, 410 F.3d at 744. er’ means fiduciary,” that the “‘United States’ is a federal corporation,” and that the “‘UNIT- In most cases, a plain record of delay or ED STATES OF AMERICA’ is another fed- contumacious conduct is found if one of the eral corporation.” The Tax Court ordered three aggravating factors is also present: Stearman to file the request with the court, as (1) delay caused by the plaintiff; (2) actual pre- required by Tax Court Rule 90(b). judice to the defendant; or (3) delay as a result of intentional conduct. Id. In Tello, we found Instead of cooperating by complying with that the Tax Court had properly dismissed the the order, Stearman filed a “status report” ask- case because of the plaintiff’s (1) failure to ing “YOU WANT WHAT? BY WHEN? If appear at the calendar call and recall of his you haven’t figured this out yet, the olive case; (2) failure to cooperate with the branch has been withdrawn” and stating “Vas- Commissioner in preparing a stipulation of quez,2 you’ve lost your mind! Go butt a facts; (3) refusal to address the merits of the stump!!3 The “status report” also called the case; (4) wilful ignorance of warnings to stop making frivolous arguments; and (5) wasting 2 Judge Vasquez is the Tax Court judge presid- ing over the case. 1 (...continued) 3 tem” than do the Commissioner’s “educated” and Earlier, after the Commissioner had filed an “vastly experienced” attorneys. (continued...) 2 Tax Court a “kangaroo court” and stated that whatsoever,” and that the judge had not al- taxpayer “has absolutely no intention of ‘re- lowed sufficient time to respond to the motion turning’ or ‘refiling’ those original discovery to dismiss.5 The response stated that the Tax documents . . . given that those documents are Court’s order to respond was “completely un- now evidence for the pending criminal investi- lawful and mindless” and characterized the gation of what may involve a whole stinking motion to dismiss as “utterly and facially sanc- group of you people.”4 Stearman explained tionable crap.”6 that he would not “refile” the requests of ad- mission with the Tax Court because the “in- It is evident that Stearman engaged in a sane tampering with the Record epidemic that pattern of delay and contumacious conduct be- runs amuck in the Tax Court is not Petitioner’s fore the Tax Court and that the delay was problem.” caused by his personal and intentional conduct. He expressly refused to file items required by Further, in retort to the Commissioner’s the court’s rules and an explicit court order, motion to dismiss for failure to state a claim, Stearman filed a response, also including an “Anticipatory Rule 60(b) Motion,” which did 5 The motion to dismiss was filed on November not address the merits of the motion to dismiss 2, 2004. On November 18, 2004, the Tax Court but asserted that the Tax Court judge “is in- ordered Stearman to file, by November 29, 2004, competent and biased and has no authority, a response to the motion to dismiss and set the motion for a hearing at the previously-scheduled trial session set for December 6, 2004. Stearman 3 (...continued) argued that he received this order on November 22, answer in No. 20928-03, Stearman also filed a 2004, and because of the Thanksgiving holiday he “status report” stating that “[u]pon receipt of the had only “two days” to respond. Stearman, how- Answer, Petitioner respectfully declines to animate ever, was served with the motion to dismiss filed on the person, capacity or usage proposed by Respon- November 2, 2004. Therefore, he had at least dent, and he is content to await notice of any sua three weeks to prepare a response by November sponte activity relevant to this matter.” 29, 2004. Further, had he filed for an extension, rather than filing a response insulting the presiding 4 The day before he filed the status report, judge, the extension could have been granted. Stearman filed a “Probable Cause Affidavit” with 6 the Tax Court that alleged various criminal acts The response contended that the government committed by the court, objected to Tax Court could not file a motion to dismiss for failure to rules, requested “production” of Judge Vasquez, state a claim nine months after it filed a responsive and submitted “interrogatories” directed to the pleading because, under Federal Rule of Civil judge. Procedure 12(b), such a motion must be made “before pleading if a further pleading is permitted.” The affidavit and several other documents filed This argument lacks merit. As explained in Fed- by Stearman in the Tax Court contained the fol- eral Rule of Civil Procedure 12(h), which deals lowing heading: “UNITED STATES TAX specifically with waiver or preservation of certain COURT (a federal corporation, committing crim- defenses, a defense for failure to state a claim “may inal acts under disguise of providing professionally be made in any pleading permitted or ordered under incompetent arbitration services, while doing [Federal Rule of Civil Procedure] 7(a), or by business in ‘this state’ via a tax exemption certifi- motion for judgment on the pleadings, or at the trial cate.” on the merits.” 3 although he had been warned that the sanction We also affirm the dismissal for failure to for failure to cooperate could be dismissal. state a claim. Whatever arguments Stearman may have on appeal on why dismissal for fail- Stearman also failed to appear at trial al- ure to state a claim was improper are waived though he had been warned that the sanction because he did not raise them in his invective- for this action could also be dismissal. In his filled response to the motion to dismiss.9 response to the motion to dismiss, he refused to address the merits of the motion, but rather We also agree with the Tax Court that insulted the judge. His insults to the judge, Stearman “has advanced shopworn arguments opposing counsel, and the Tax Court, and his characteristic of tax-protester rhetoric that has general contempt and defiance of the court’s been universally rejected by this and other authority and accusations of criminal conduct courts.” T.C. Memo 2005-39. Stearman ap- are intentional, not mistakes or oversights. As pears to have borrowed his theories and liti- we explained in John v. Louisiana, 828 F.2d gating strategy from the taxpayer in Tello v. 1129, 1131 (5th Cir. 1987), it is not a party’s Comm’r, 143 Fed. Appx. 568 (5th Cir.) (per negligence, regardless of how careless or in- curiam), cert. denied, 126 S. Ct. 667 (2005). considerate, that makes conduct contuma- cious; instead, it is “the stubborn resistance to As with Stearman, the plaintiff in Tello did authority” that justifies a dismissal with preju- not deny receiving the income stated in the no- dice. tice of deficiency or the fact that he did not file a tax return for the years at issue. Also as Moreover, Stearman’s frivolous arguments, here, Tello alleged that the notice of deficiency insults, failure to cooperate and other dilatory was improper because (1) the accounting practices wasted the Tax Court’s resources. method the Commissioner employed was not Because Stearman was pro se, he was also as suitable as Tello’s preferred accounting personally responsible for the delay. method; (2) the Commissioner is not permitted to provide accounting services in the State of Given the obstinate and harassing nature of Texas; (3) the Commissioner is not permitted Stearman’s conduct, including his wilful failure to practice law in the State of Texas; and (4) to cooperate and to appear at trial despite the the taxpayer has no “fiduciary obligation” to judge’s explicit warnings, it is apparent from the record that lesser sanctions were futile.7 Therefore, the dismissal for failure to pro- secute is proper under Tello, 410 F.3d at 744.8 8 (...continued) other cause which the Court deems sufficient, the 7 See Rogers v. Kroger Co., 669 F.2d 317, 323 Court may dismiss a case at any time and enter a (5th Cir. 1982) (noting that lesser sanctions in- decision against the petitioner.”). clude, among others, explicit warnings). 9 See Little v. Liquid Air Corp., 37 F.3d 1069, 8 See also T AX COURT R. 123(b) (“For failure 1071 n.1 (5th Cir. 1993) (en banc) (per curiam) of a petitioner properly to prosecute or to comply (explaining that court of appeals will not consider with these Rules or any order of the Court or for evidence or arguments that were not raised in dis- (continued...) trict court). 4 pay taxes to the Internal Revenue Service.10 reasons, we affirm here. Id. In Tello, we affirmed the Tax Court’s dis- missal for failure to state a claim, labeling the Furthermore, the Tax Court did not abuse claims as “patently frivolous.”11 For the same its discretion in sanctioning Stearman $12,500 per case under § 6673(a), which allows sanc- tions where a taxpayer institutes or maintains 10 Although, on appeal and in various filings a proceeding primarily for delay or his position with which he inundated the Tax Court, Stearman in the proceeding is frivolous or groundless. also challenged the constitutionality of various Tax As discussed above, Stearman failed properly Court rules and asserted violations of due process to prosecute his case, which indicates that he and equal protection by Judge Vasquez, maintained the proceedings primarily for delay, Stearman’s complaint makes only the four claims discussed above. and his position in the proceeding was utterly frivolous. 11 In Tello, 143 Fed. Appx. at 569-70, the court held as follows: II. The Commissioner moves in this court to It is clear that Tello’s petition was the proper sanction Stearman $6,000 for maintaining a subject of a dismissal for failure to state a frivolous appeal so that the government can be claim. Petitions in the Tax Court are governed compensated for the cost of defending this ap- by TAX CT . R. 34(b)(4), which states that a peal. Stearman has not responded to the mo- petition must contain: “Clear and concise as- tion; his main arguments on appeal are the signments of each and every error which the same frivolous ones he advanced in the Tax petitioner alleges to have been committed by the Court. Commissioner in the determination of the deficiency or liability . . . . Any issue not raised in the assignments of error shall be deemed to As we recently cautioned in Tello, 410 F.3d be conceded.” The assignments of error Tello at 745, a party who continues to advance made in his petition for redetermination were long-defunct arguments invites sanctions.12 patently frivolous. The heart of Tello’s argu- Sanctions on pro se litigants are appropriate if ment in the Tax Court was that the CIR has no authority to collect tax revenue. It is manifest that the CIR and the IRS have the authority to 11 (...continued) collect tax r evenue by virtue of the Internal Comm'r, 23 F.3d 941, 943 (5th Cir. 1994). Revenue Code. See I.R.C. §§ 7801-7804 Accordingly, we affirm the Tax Court’s dis- (2000). Thus, his primary assignment of error missal of Tello’s petition for redetermination. was plainly without merit. Furthermore, it is evident that by virtue of promulgating official (Ellipses in original.) tax documents, the CIR has not engaged in the 12 unauthorized practice of accounting or law. See also Parker v. Comm’r, 117 F.3d 785, We have previously upheld the Tax Court's 787 (5th Cir. 1997) (noting that despite the warn- dismissal of petitions for redetermination under ing “that their claims were meritless, the Parkers Rule 34(b)(5) for failure “to allege any justicia- filed the present appeal in which they continued to ble error in the determinations upon which the maintain that the entire Tax Code is an elaborate notice of deficiency was based or any facts ‘fraud’ designed to ‘catch the naive’”); Coghlan v. tending to support any such error.” Sochia v. Starkey, 852 F.2d 806 (5th Cir. 1988) (per (continued...) curiam). 5 they were warned, as Stearman was, that their 1989), for example, the court doubled sua claims are frivolous and if they were aware of sponte the amount of lump-sum appellate “ample legal authority holding squarely against sanctions requested by the Commissioner be- them.” Stelly v. Comm’r, 761 F.2d 1113, cause the circumstances indicated that higher 1116 (5th Cir. 1985) (per curiam) (“Although damages were appropriate.15 a court can demand a higher degree of respon- sibility from members of the bar, litigants The extraordinary circumstances of this cannot be treated as free to advance frivolous case indicate that greater sanctions are called claims merely because they appear without for. Stearman knew that this court had dis- counsel.”). Because Stearman explicitly ques- missed similar arguments as frivolous in the tions the wisdom of the Tello cases in his brief, Tello cases, as shown by Stearman’s offensive he must have been aware that the Tello cases insinuations with respect to this court’s alleged rejected the theories that he advanced as lack of preparation in those cases.16 He was patently frivolous.13 We accordingly grant the also warned by the Tax Court that his argu- motion for sanctions of $6,000 for pursuing a ments are frivolous. Yet on appeal, rather frivolous appeal pursuant to 26 U.S.C. than explaining why the Tax Court committed § 7482(c)(4), 28 U.S.C. § 1912, and Federal error, Stearman restated the myriad of claims Rule of Appellate Procedure 38.14 with which he inundated the Tax Court and added insults to the address of the Tax Moreover, because the sanctions imposed by the Tax Court (cumulatively $25,000) did not deter Stearman from pursuing the same frivolous arguments on appeal, we impose sua 15 See also Billman v. Comm’r, 847 F.2d 887 sponte an additional sanction of $6,000. See (D.C. Cir. 1988) (finding that the tax protester’s 28 U.S.C. § 1912; FED. R. APP. P. 38. As reassertion of the very claims for which he was pointed out in Coghlan, 852 F.2d at 808 & previously sanctioned warranted doubling of earlier n.1, “there is no question that the courts of ap- sanction). peals have the ability to impose sanctions sua sponte.” As we warned in Stelly, 761 F.2d at 16 In his appellate brief, Stearman appears to 1115-16, sanctions greater than reasonable at- insinuate that this court is incompetent: torney’s fees and double costs may “be im- posed under appropriate circumstances.” In It’s difficult to figure how this court could both Stoecklin v. Comm’r, 865 F.2d 1221 (11th Cir. (A) know the legal reality of the “federal in- come tax system” and (B) press these matters to the extent this court have [sic] pressed them. 13 Upon review of this court’s decisions in the See infra note 16. Tello cases, it’s very clear that a review of the 14 See Tello, 410 F.3d at 745 (awarding the “naked case” is necessary. same amount in a case where petitioner advanced similar arguments); Parker, 117 F.3d at 787 (ap- Similarly, Stearman also insinuates that this court proving the practice of imposing a lump sum sanc- has not afforded tax litigants adequate consider- tion in lieu of costs because it “saves the govern- ation: “There is no amount of sanctions or penal- ment the additional cost of calculating its expenses, ties that will ever change the law or make up for and also saves the court the time and expense of this court’s well-demonstrated disinclination to reviewing the submission of costs”). study these matters.” 6 Court,17 and, as discussed above, of this court. unjustifiably consume the limited resources of Stearman’s contempt for the judicial system the judicial system: “While judges, staff and further demonstrates that he did not institute support personnel have expended energy to the proceedings in good faith, but merely to dispose of this meritless appeal, justice has harass the collection of public revenues. been delayed for truly deserving litigants.” Foret v. S. Farm Bureau Life Ins. Co., 918 The $12,000 in sanctions is modest com- F.2d 534, 539 (5th Cir. 1990). pared to the amount of unpaid taxes Stearman owes for 1999, 2000 and 2001, which exceeds Other circuits have also long recognized the $280,000. Although Stearman styles himself waste of judicial resources occasioned by such as a “moron pro se from hickville Texas,” his groundless tax protester appeals: annual income for 1999, 2000 and 2001 sug- gests that he may not be as unsophisticated as he pretends and that his pro se status relates to an unwillingness, not an inability, to secure an 18 (...continued) attorney. part of “just damages,” or single or double “costs.” Generally, statutes allowing sanctions either Even if we were to assume that Stearman is “define attorney’s fees as an element of costs” or unsophisticated, what distinguishes this case “separate fees from other taxable costs.” Hutto v. from other tax protester cases in which we im- Finney, 437 U.S. 678, 697 n. 28 (1978) (compar- posed lesser sanctions is that Stearman in- ing 42 U.S.C. § 2000a-3(b) with 29 U.S.C. § sulted this court, the Tax Court, and the op- 216(b) (1970 ed., Supp. V)). Section 2000a-3(b) is in the former category because it provides, in posing party. Even a pro se petitioner is re- pertinent part, that the court in its discretion “may quired to be respectful in judicial proceedings. allow the prevailing party . . . a reasonable attor- Thus, it is difficult to imagine a lesser sanction ney’s fee as part of the costs.” In contrast, § that would vindicate the integrity of the court 216(b) states that the court shall “allow a reason- proceedings and deter Stearman from similar able attorney’s fee to be paid by the defendant, and misconduct.18 Wasteful and dilatory appeals costs of the action.” Unlike § 216(b), rule 38 does not define at- 17 torney’s fees as an element separate from costs. Stearman argued in his appellate brief that the Tax Court is a “kangaroo court the likes of Therefore, if attorney’s fees are an element of which are rather difficult to match.” He also states costs, double costs may include double attorney’s that “Vasquez is completely in the dark regarding fees. Additionally, “just damages” that would vin- the legal mechanics of the ‘federal income tax dicate the integrity of the judicial proceeding and system.’ That may go a long way to explain his deter Stearman from future misconduct could maniacal conduct in this matter. Either way, a real include double attorney’s fees. Here, the Com- judge doesn’t do what Vasquez does.” missioner argued in his motion for sanctions that the average expense in attorney salaries and other 18 Rule 38 of the Federal Rules of Appellate costs that it incurred in defending frivolous tax- Procedure provides that a court of appeals may payer appeals in which sanctions were awarded award “just damages” and single or double costs during 2001 and 2002 was approximately $6,900. for frivolous appeals. Rule 38 does not specify Thus, $12,000 is not more than double attorney’s whether attorney’s fees that may be awarded are fees and other costs, that is, not more than “double (continued...) costs” and “just damages.” 7 The doors of this courthouse are of course open to good faith appeals . . . . But we can no longer tolerate abuse of the judicial review process by irresponsible taxpayers who press stale and frivolous arguments, without hope of success on the merits, in order to delay or harass the collection of public revenues or for other nonworthy purposes. Granzow v. Comm’r, 739 F.2d 265, 270 (7th Cir. 1984). The court in Granzow also warned that it will not hesitate to impose even greater sanctions for frivolous tax protester appeals under appropriate circumstances. Id. We therefore AFFIRM the decision of the Tax Court, including the $25,000 in sanctions, and impose $12,000 in sanctions on Stearman for pursuing a frivolous appeal. 8