T.C. Memo. 2009-273
UNITED STATES TAX COURT
RICHARD AND FIORELLA HONGSERMEIER, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 29643-86. Filed November 25, 2009.
Michael Louis Minns and Enid M. Williams, for
petitioners.
Henry E. O’Neill, for respondent.
CONTENTS
Background . . . . . . . . . . . . . . . . . . . . . . . . . . 8
I. Kersting Tax Litigation Through Dixon V Remand . . . 8
II. Dixon V Remand Proceeding . . . . . . . . . . . . . 14
A. Houston Status Conference . . . . . . . . . . 15
B. Los Angeles Status Conference and Thompson
Tax Records for Years Other Than 1979, 1980,
and 1981 . . . . . . . . . . . . . . . . . . 17
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C. Las Vegas Special Session . . . . . . . . . . 17
D. Los Angeles Special Session . . . . . . . . . 19
E. Washington, D.C., Special Session and
Petitioners’ Opening Brief . . . . . . . . . . 19
F. Our Determination of Scope of Thompson
Settlement and Awards of Appellate Fees . . . 20
G. Minns’ Motion for Reconsideration . . . . . . 21
III. The Minns Law Office’s Dixon V Remand Proceeding Fee
and Expense Requests . . . . . . . . . . . . . . . 22
Discussion . . . . . . . . . . . . . . . . . . . . . . . . . 28
I. Application of Section 6673(a)(2)(B) . . . . . . . 28
A. General Rules . . . . . . . . . . . . . . . . . 29
B. Meaning of “Incurred” Under Section
6673(a)(2)(B) . . . . . . . . . . . . . . . . . 30
II. Reasonable Hourly Rates . . . . . . . . . . . . . . 32
A. Minns’ and Williams’ Hourly Rates . . . . . . 33
B. Paralegal’s and Secretary’s Hourly Rates . . . 35
III. Hours Reasonably Expended . . . . . . . . . . . . . 36
A. Preliminary Comments . . . . . . . . . . . . . 37
B. Reasonably Related to Dixon V Remand
Proceeding . . . . . . . . . . . . . . . . . . 40
1. Fees Incurred During Appeal of
Dixon III . . . . . . . . . . . . . . . . 40
2. Collection, Bankruptcy, and Probate
Matters . . . . . . . . . . . . . . . . 42
3. Disciplinary Proceedings Against McWade and
Sims . . . . . . . . . . . . . . . . . . 44
4. Freedom of Information Act Lawsuit . . . 45
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5. Client Relations . . . . . . . . . . . . 45
6. Motion for Reconsideration. . . . . . . . 49
7. Entries Related to L. T. Bradt . . . . . 50
8. Entries Related to Joseph Nunan . . . . . 51
9. Chapin Billing Dispute . . . . . . . . . 51
10. Closed Cases . . . . . . . . . . . . . . 52
11. Overhead Expenses . . . . . . . . . . . . 54
a. Secretary’s Services . . . . . . . . 55
b. Overtime Air Conditioning . . . . . . 56
12. Inadequately Described Entries . . . . . 56
13. Miscellaneous . . . . . . . . . . . . . . 58
a. Minns’ Services . . . . . . . . . . 58
b. Williams’ Services . . . . . . . . . 65
c. Paralegal Services . . . . . . . . . 67
d. Total . . . . . . . . . . . . . . . 68
14. Total Reductions for Entries Not Reasonably
Related to Dixon V Remand Proceeding . . 68
C. Reliability of Documentation . . . . . . . . . 69
D. Duplicative and Excessive Efforts . . . . . . 70
1. Excessive Fees and Expenses . . . . . . . 71
2. Reduction for Duplicative and Excessive
Efforts . . . . . . . . . . . . . . . . 73
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . 74
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MEMORANDUM OPINION
BEGHE, Judge: This is the third opinion in our third set of
opinions on various petitioners’ applications for attorney’s fees
and expenses incurred in the Kersting tax shelter project
litigation after the discovery and disclosure of the misconduct
of respondent’s trial counsel in Dixon v. Commissioner, T.C.
Memo. 1991-614 (Dixon II), vacated and remanded per curiam sub
nom. DuFresne v. Commissioner, 26 F.3d 105 (9th Cir. 1994), on
remand Dixon v. Commissioner, T.C. Memo. 1999-101 (Dixon III),
revd. and remanded 316 F.3d 1041 (9th Cir. 2003) (Dixon V), on
remand Dixon v. Commissioner, T.C. Memo. 2006-90 (Dixon VI),
supplemented by Dixon v. Commissioner, T.C. Memo. 2006-190 (Dixon
VIII), on appeal (9th Cir., Dec. 28, 2006, and Jan. 3, 2007).
In our first attorney’s fees opinion, Dixon v. Commissioner,
T.C. Memo. 2000-116 (Dixon IV) (supplementing Dixon III), we
awarded Kersting project petitioners attorney’s fees and expenses
under section 6673(a)(2)(B)1 for services in this Court rendered
by Attorneys Joe Alfred Izen, Jr. (Izen), Robert Allen Jones
(Jones), and Robert Patrick Sticht (Sticht) during the remand
from DuFresne.
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the years at issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure.
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In the second set of attorney’s fees opinions, Dixon v.
Commissioner, T.C. Memo. 2006-97 (Dixon VII), and Young v.
Commissioner, T.C. Memo. 2006-189, we responded to the
supplemental mandate of the Court of Appeals for the Ninth
Circuit to rule on Kersting project petitioners’ requests for
appellate attorney’s fees and expenses incurred in the Dixon V
appellate proceeding. In Dixon VII we awarded appellate
attorney’s fees and expenses under section 7430 to Kersting
project petitioners represented in the Dixon V appeals by Porter
& Hedges Attorneys John R. Irvine (Irvine) and his partner, Henry
G. Binder (Binder), and by Michael Louis Minns (Minns). In Young
we awarded appellate fees and expenses under section 7430 to
Kersting project petitioners represented in the Dixon V appeals
by Izen and Jones.
This third set of opinions pertains to fees and expenses
incurred in this Court during the remand from Dixon V (Dixon V
remand proceeding),2 which resulted in Dixon VI, supplemented by
Dixon VIII, determining the terms and benefits of the Thompson
2
Respondent and petitioners represented by Sticht reached a
comprehensive settlement agreement regarding fees and expenses
incurred from 1992 through 2006, including the Dixon V remand
proceeding, which superseded our award to Sticht’s clients in
Dixon IV. On Oct. 4, 2006, we ordered respondent to disburse
$1,254,368.11 to Sticht’s clients in satisfaction of that
agreement. Of this amount, approximately $237,000 was
attributable to fees for the services of Sticht and his associate
in the Dixon V remand proceeding.
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settlement.3 In our most recent opinions, Dixon v.
Commissioner, 132 T.C. __ (2009) (Dixon IX), and Gridley v.
Commissioner, T.C. Memo. 2009-89 (Gridley II), we awarded fees
and expenses under section 6673(a)(2)(B) for the respective
services of Irvine, Binder, and other Porter & Hedges attorneys
and of Jones in the Dixon V remand proceeding.
In this Memorandum Opinion we award fees and expenses under
section 6673(a)(2)(B) for services of Minns and his staff on
behalf of the Hongsermeier test-case petitioners and various non-
test-case petitioners in the Dixon V remand proceeding. A later
opinion will deal with the pending motion of other Kersting test-
case and non-test-case petitioners to recover Izen’s fees and
expenses incurred in the Dixon V remand proceeding.
Petitioners have submitted an amended request for $967,3794
in fees and $21,525.99 in expenses. Respondent objects to the
hourly rates and number of hours claimed as unreasonable;
respondent requests substantial reductions.
After considering petitioners’ amended request and
respondents’ objections to claimed hourly rates, we will reduce
3
Petitioners’ dockets were consolidated in the Dixon V
remand proceeding for the purposes of hearing, briefing, and
opinion with 26 other docketed cases of Kersting project
petitioners represented by Irvine, Izen, Jones, and Sticht.
4
Petitioners’ amended fee request states that petitioners
are requesting $967,362.21, whereas the total hours listed in
petitioners’ amended fee request multiplied by the claimed hourly
rates come to $967,379.
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Minns’ hourly rate from $500 to $350 per hour and reduce the
claim for the services of his associate, Enid M. Williams
(Williams), from $250 to $175 per hour. We will allow the
requested hourly rates of $100 and $75 per hour for services of a
paralegal and secretary. The rate reductions alone would reduce
petitioners’ requested award by $285,363.75 ($229,993.50
attributable to Minns and $55,370.25 attributable to Williams) to
$682,015.25.5
In response to respondent’s objections to specific items in
various categories of services, we will reduce petitioners’
requested award by a total of 736.89 hours for Minns, Williams,
the paralegal, and the secretary, amounting to an additional
$197,976.50 reduction of petitioners’ requested fee award, which
would leave petitioners a fee award of $484,038.75.
In addition to the above fee reductions attributable to
respondent’s specific objections, we will reduce petitioners’ fee
award across-the-board by an additional one-third (33-1/3
percent) of the remaining fee amount, amounting to $161,346.25,
to reflect “overlawyering” and lack of contemporaneous
documentation. After subtracting this percentage reduction, we
hold that petitioners are entitled to a fee award of $323,692.50.
5
Unless otherwise specified, all dollar amounts attributable
to Minns’ and Williams’ services have been calculated using
reduced rates of $350 per hour for Minns and $175 per hour for
Williams. See infra Discussion, Part II.
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We also reduce petitioners’ requested expenses by $6,236.44,
leaving an expense award of $15,289.55.
Background
The underlying facts in these cases are described in Dixon
II, Dixon III, Dixon IV, Dixon VI, Dixon VII, Young v.
Commissioner, T.C. Memo. 2006-189, Dixon VIII, Dixon IX, and
Gridley II. The parties have provided additional facts in
petitioners’ fee request, as amended, and respondent’s
objections. The parties have not requested an evidentiary
hearing, and we have found a hearing unnecessary. Cf. Rule
232(a)(2).
I. Kersting Tax Litigation Through Dixon V Remand
The Kersting tax shelter litigation arose from respondent’s
disallowance of interest deductions claimed by participants in
tax shelter programs promoted by Henry F.K. Kersting (Mr.
Kersting) during the late 1970s and the 1980s. Respondent’s
determinations of deficiencies against Kersting tax shelter
participants eventually resulted in the docketing of
approximately 1,800 cases in the Tax Court. Most Kersting
project petitioners entered into “piggyback” agreements with
respondent in which they agreed that their cases would be
resolved in accordance with a small number of test cases. The
Hongsermeiers were among the test-case petitioners.
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In Dixon II the Court upheld the deficiencies resulting from
Kersting tax shelter deductions claimed by the test-case
petitioners. On June 9, 1992, after entry of the Court’s
decisions in Dixon II, respondent’s management discovered that
before trial respondent’s trial attorney, Kenneth W. McWade
(McWade), and his supervisor, Honolulu District Counsel William
A. Sims (Sims), had entered into secret settlement agreements
with test-case petitioners John R. and Maydee Thompson (the
Thompsons) and John R. and E. Maria Cravens (the Cravenses).
McWade and Sims had not disclosed the Thompson and Cravens
settlements to their superiors, the Court, or the other test-case
petitioners or their counsel. The primary purpose and final
effect of the Thompson settlement was to provide the Thompsons
refunds more than sufficient to pay the fees of Luis G. DeCastro
(DeCastro), the Thompsons’ attorney, to provide the appearance of
independent representation of test-case petitioners in the
test-case trial.
Respondent filed a motion for an evidentiary hearing to
determine whether the secret settlements had affected the Court’s
decisions in Dixon II. The Court denied respondent’s motion for
an evidentiary hearing, entered decisions giving effect to the
Thompson and Cravens settlements, and allowed to stand the
decisions sustaining respondent’s adverse determinations against
the other test-case petitioners. We also denied motions to
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intervene in the Thompson and Cravens cases filed by Izen and
Sticht on behalf of certain test-case and non-test-case
petitioners.
The test-case petitioners (other than the Thompsons and the
Cravenses) and the non-test-case petitioners seeking to intervene
appealed to the U.S. Court of Appeals for the Ninth Circuit. The
Court of Appeals vacated our decisions in the test cases, holding
that an evidentiary hearing was needed to determine whether the
misconduct of respondent’s counsel had given rise to “a
structural defect voiding the judgment [in Dixon II] as
fundamentally unfair, or whether, despite the government’s
misconduct, the judgment can be upheld as harmless error.”
DuFresne v. Commissioner, 26 F.3d at 107. The Court of Appeals
directed the Tax Court to hold such a hearing and to consider the
merits of all motions of intervention filed by affected parties.
In an unpublished opinion, Adair v. Commissioner, 26 F.3d 129
(9th Cir. 1994), the DuFresne panel (Goodwin, Ferguson, and
Trott, JJ.) affirmed our denials of the motions to intervene in
the Thompson and Cravens cases on the ground that those decisions
had become final.
To give effect to the direction of the Court of Appeals in
DuFresne to consider the merits of all motions to intervene by
affected parties, we ordered the consolidation of 10 non-test-
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cases with the remaining test cases for the evidentiary hearing,
briefing, and opinion required by the Dufresne mandate.
In the course of that evidentiary hearing Izen
sought discovery of documents pertaining to respondent’s conduct
after the trial of the test cases. Izen alleged, among other
things, that respondent after May 1992 tried to conceal the
fraudulent conduct of the Government attorneys in the test cases.
We denied Izen’s discovery requests, sustaining various
privileges asserted by respondent. See Dixon III, PROCEDURAL
HISTORY OF EVIDENTIARY HEARING, III. Developments Following
Initial Evidentiary Hearing, C. Denial of Mr. Izen’s Motion To
Compel Production of Documents.
After the evidentiary hearing we issued our opinion in Dixon
III, generally allowing the Court’s decisions in Dixon II to
stand and holding that McWade’s and Sims’ misconduct did not
create a structural defect that prejudiced the Court’s decision
in Dixon II but amounted to harmless error. However, we imposed
sanctions against respondent by relieving test-case and non-test-
case petitioners of liability for (1) the interest component of
the addition to tax for negligence under former section 6653(a),
and (2) the increased interest attributable to the higher rate
prescribed in former section 6621(c). See Dixon III. On April
1, 1999, 2 days after issuance of our Dixon III opinion, we
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referred the misconduct of McWade, Sims, and DeCastro to the Tax
Court’s Committee on Admissions, Ethics, and Discipline.
In Dixon IV we imposed additional sanctions pursuant to
section 6673(a)(2)(B) by ordering respondent to pay attorney’s
fees of Kersting project petitioners to investigate and present
the evidence of McWade’s and Sims’ misconduct to the Court. In
so doing, we reduced the awards of fees requested in Dixon IV by
one-third across-the-board to reflect various failures of proof.
The test-case petitioners again appealed to the Court of
Appeals for the Ninth Circuit. We also certified the cases of
non-test-case petitioners represented by Izen, Sticht, Jones, and
Declan J. O’Donnell (O’Donnell) for interlocutory appeal. After
various procedural delays described more fully in Young v.
Commissioner, T.C. Memo. 2006-189, the Court of Appeals accepted
the interlocutory appeals of the nontest cases but held them in
abeyance pending resolution of the appeals of the test cases.
In the meantime Minns replaced Izen as appellate attorney
for the Dixons, the DuFresnes, and the Hongsermeiers. Later,
Irvine and Binder replaced Minns as appellate attorneys for the
Dixons and the DuFresnes. Minns remained appellate attorney for
the Hongsermeiers, and Izen remained appellate attorney for the
Youngs and the Owenses and the Adair non-test-case petitioners.
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On January 17, 2003, another panel of the Court of Appeals
(D.W. Nelson, Hawkins, and Wardlaw, JJ.) issued Dixon V (amended
March 18, 2003), reversing Dixon III and remanding the test
cases. The Court of Appeals held that the misconduct of the
Government attorneys was a fraud on the Court, for which no
showing of prejudice was required. Dixon V, at 1046. The Court
of Appeals directed us to extend the terms of the Thompson
settlement to “Appellants and all other taxpayers properly before
this Court”. Id. at 1047. The Court of Appeals left to our
discretion “the fashioning of such judgments which, to the extent
possible and practicable, should put these taxpayers in the same
position as provided for in the Thompson settlement.” Id. n.11.
The Court of Appeals took no action on our denial of Izen’s
discovery requests.
On March 14, 2003, another panel of the Court of Appeals for
the Ninth Circuit (Canby, O’Scannlain, and T.G. Nelson, JJ.)
remanded the nontest cases that had been appealed and held in
abeyance, directing further proceedings consistent with Dixon V.
By January 23, 2003, Minns had began to pursue disciplinary
actions against McWade and Sims. Following what he interpreted
as a suggestion or order by a member of the panel that heard oral
argument on the appeal that resulted in Dixon V, Minns filed
complaints that resulted in suspensions from practice of McWade
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and Sims by the Oregon and Arkansas Bars, respectively, and the
IRS Office of Professional Responsibility.
On February 20, 2004, the Tax Court, acting on the orders to
show cause and the recommendations of the Committee on
Admissions, Ethics, and Discipline, suspended McWade and Sims
from practice before the Court6 for 2 years.7 In February 2004,
the Arkansas State Bar suspended Sims’s license to practice law
for 1 year, and in August 2004, the Oregon State Bar suspended
McWade’s license to practice for 2 years. On June 9, 2004, the
Director of the IRS Office of Professional Responsibility
suspended McWade and Sims from practice before the IRS for an
indefinite period.
II. Dixon V Remand Proceeding
On April 23, 2003, the Tax Court received the primary
mandate of the Court of Appeals (the primary mandate) vacating
Dixon III.8 The primary mandate required that we determine the
terms of the Thompson settlement and enter decisions that, “to
6
On July 14, 2003, the Tax Court had accepted DeCastro’s
resignation from the Tax Court bar.
7
On Oct. 9, 2007, and on Jan. 15, 2008, respectively, McWade
submitted a petition for reinstatement and a supplement thereto.
After a hearing and consideration of an additional supplement
submitted by McWade, the Court, in an order dated June 27, 2008,
denied McWade’s petition for reinstatement.
8
On June 2, 2003, the Court received the supplemental
mandate of the Dixon V panel, directing the Court to act on
petitioners’ appellate fee requests.
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the extent possible and practicable”, would put Kersting project
petitioners in the same position as provided for in the Thompson
settlement.
On April 30, 2003, respondent filed a motion for a status
conference. On May 1, 2003, the Court ordered the parties to
file status reports by May 30. By or around May 30, status
reports were received from all participating counsel, including
Minns.
As described in the background statement of Dixon IX,
counsel for all represented petitioners informally agreed that
Porter & Hedges would, in effect, serve as lead counsel in the
Dixon V remand proceeding. Through Binder, Porter & Hedges
played the lead role in presenting the petitioners’ case in the
Dixon V remand proceeding.
A. Houston Status Conference
On July 7, 2003, we scheduled a status conference, to be
held in Houston on August 18, 2003. On July 11, 2003, we
ordered the parties to file reports of their suggestions for
the agenda of that status conference. By August 12, 2003,
counsel for the petitioners whose cases had been consolidated
for the Dixon V remand proceeding filed their reports. O’Donnell
asserted in his report that Kersting project petitioners whose
cases had been closed by stipulated decisions (the closed cases)
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should also be entitled to the benefit of the Thompson
settlement.9
The Houston status conference lasted 2 days. Minns appeared
and spoke on the first day of the conference. Williams alone
attended the second day but had no occasion to speak.
At the Houston status conference it became obvious that the
parties were in substantial disagreement about the terms of the
Thompson settlement. Petitioners contended that the Thompsons
received tax benefits from the Thompson settlement that went
beyond the stated terms of the settlement and decision documents.
Petitioners also asserted that those benefits extended to taxable
years of the Thompsons other than 1979, 1980, and 1981, the
taxable years at issue in the Thompson test cases.
9
Several Kersting project petitioners whose cases had been
closed by stipulated decisions subsequently filed or attempted to
file motions for leave to file motions to vacate those decisions.
In Hartman v. Commissioner, T.C. Memo. 2008-124 (Hartman I),
reconsidering and superseding Lewis v. Commissioner, T.C. Memo.
2005-205, we held that the Thompson settlement sanction will be
imposed against respondent in the docketed cases of all Kersting
project petitioners in which stipulated decisions were entered on
or after June 10, 1985, the commencement date of the Court’s
Honolulu trial session at which the Court and representatives of
the parties agreed to use the test-case procedure. In Hartman v.
Commissioner, T.C. Memo. 2009-124 (Hartman II), we granted in
part motions for reconsideration insofar as they concern the
mechanics of implementing the sanctions against respondent in the
closed cases.
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B. Los Angeles Status Conference and Thompson Tax Records
for Years Other Than 1979, 1980, and 1981
Because the parties could not agree on the terms and
benefits of the Thompson settlement, further evidentiary
proceedings were required; we scheduled another status conference
for September 5, 2003, in Los Angeles. At this conference Jones
complained that respondent had failed to provide transcripts of
the Thompsons’ tax records. Jones argued that these records were
needed to determine whether the terms and benefits of the
Thompson settlement extended beyond the years 1979, 1980, and
1981.
C. Las Vegas Special Session
On April 13, 2004, we issued a scheduling order, setting the
first session of the evidentiary hearing for September 20, 2004,
in Las Vegas. The order stated that the hearing was to be held
for the sole purpose of determining the terms of the Thompson
settlement. The order further stated that neither appellate fees
nor the closed cases would be addressed during the evidentiary
hearing.
On September 10, 2004, respondent’s counsel, Henry E.
O’Neill (O’Neill), informed petitioners that, on September 9,
2004, he had found the Thompsons’ tax records and returns for the
years 1983 through 1989. Petitioners cited O’Neill’s delay in
providing these returns as further evidence of respondent’s
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efforts to prevent disclosure of the full extent of respondent’s
former counsel’s misconduct.
On September 20 through 22, 2004, the Court held the first
scheduled hearing session in Las Vegas. The Thompson records
that O’Neill had found were received into evidence on the first
day of the hearing.
Soon after the session began, Minns requested the Court’s
permission to leave at 11 a.m. on the second day of the session
so that he could attend other Federal court proceedings. Minns
assured the Court that Williams would take his place for the
remainder of the session. We granted Minns’ request.
During the afternoon of the first day of the hearing
session, Minns requested the Court’s permission to allow Tom
Snell (Snell), an accountant, to take Minns’ seat at petitioners’
counsel’s table. Minns explained that Snell,
whose expertise had been sought to establish evidence
supporting petitioners’ theories, would assist Binder with
matters related to accounting. The Court allowed Snell to take
Minns’ seat at the counsel table, and Minns sat with the
audience.
Williams attended the second and third days of the Las Vegas
hearing session in place of Minns. Williams sat with the
audience and did not question any witnesses or otherwise appear
to participate actively in the proceeding.
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D. Los Angeles Special Session
Many factual issues remained unresolved after the Las Vegas
hearing session. On October 6, 2004, the Court issued a
scheduling order continuing the hearing to November 22, 2004, in
Los Angeles.
Williams rather than Minns attended the Los Angeles hearing
session. Williams’ only active participation in the session
was signing a stipulation of facts on behalf of the Minns Law
Office. Otherwise, she sat with the audience during the hearing.
According to Williams’ timesheets, she spent more than 8
hours at the hearing and conferring with counsel on November 22
and more than 10 hours at the hearing and meeting with a client
on November 23. The hearing session followed by a brief meeting
in chambers lasted no more than 4 hours on November 22.
E. Washington, D.C., Special Session and Petitioners’
Opening Brief
On February 3, 2005, petitioners through Binder filed a
motion for a third and final evidentiary hearing session. On
February 4, 2005, we issued an order setting the final hearing
session to begin March 29, 2005, in Washington, D.C.
On March 29, 2005, in Washington, D.C., we began the
final 2-day session of the Dixon V evidentiary hearing. Williams
attended in Minns’ place and did not actively participate.
On the second day of the Washington, D.C., session, the
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Kersting project petitioners agreed to submit a joint opening
brief for which Binder would do most of the work. Counsel for
respondent and the Kersting project petitioners further informed
the Court that they agreed that attorney’s fees incurred during
the Dixon V remand proceeding should be awarded under section
6673(a)(2) rather than section 7430.
F. Our Determination of Scope of Thompson Settlement and
Awards of Appellate Fees
On July 14, 2005, Binder filed a 189-page joint opening
brief signed by all petitioners’ counsel who had participated in
the Dixon V remand proceeding. Among the myriad issues addressed
in this brief were the treatment of the section 6651(a)(1)
addition to tax as a term of the Thompson settlement and the
cutoff date of deficiency interest accruals against Kersting
project petitioners, as well as petitioners’ primary argument
that the overall percentage reduction in deficiencies provided by
the Thompson settlement amounted to approximately 80 percent of
the Thompson deficiencies.
On July 14, 2005, Sticht filed a nine-page supplemental
brief arguing for an 87-percent reduction in deficiencies and an
earlier cutoff date for interest accruals on the deficiencies.
On July 15, 2005, Jones, O’Donnell, and Izen filed a 21-page
joint supplemental brief arguing primarily that the Court should
impose as a sanction a 100-percent reduction in the deficiencies
on respondent. Minns did not file a supplemental brief.
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On May 2, 2006, we issued our opinion in Dixon VI,
explaining our determination of the terms and benefits of the
Thompson settlement, including a 63.37-percent reduction of the
Thompson deficiencies. In Dixon VII and Young v. Commissioner,
T.C. Memo. 2006-189, issued May 10 and September 6, 2006,
respectively, we awarded appellate fees and expenses under
section 7430 for services through April 30, 2003, the date
respondent filed the motion for a status conference.
G. Minns’ Motion for Reconsideration
On June 6, 2006, Minns, on behalf of the Hongsermeiers,
filed a motion for reconsideration of our opinion in Dixon VI.
Minns’ motion presented two arguments. First, Minns argued that
the Court should have cut off interest on petitioners’
deficiencies commencing in 1986 with the inception of the fraud
and not 1992, in accordance with respondent’s concession, and
should have handled the section 6651(a) late-filing addition
differently. Second, Minns argued that the Court’s opinion in
Dixon VI did not adequately address later misconduct of
respondent’s attorneys.
On September 7, 2006, we issued Dixon VIII, responding to
the Hongsermeiers’ motion for reconsideration filed by Minns.
With regard to Minns’ first argument relating to the cutoff of
interest and treatment of section 6651 additions to tax, we cited
Estate of Quick v. Commissioner, 110 T.C. 440, 441 (1998), and
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noted that we had fully addressed these issues in Dixon VI,10 and
we declined to do anything further. Dixon VIII n.3; see also
Stoody v. Commissioner, 67 T.C. 643, 644 (1977); Lowry v.
Commissioner, T.C. Memo. 2004-10; Estate of Scanlan v.
Commissioner, T.C. Memo. 1996-414.
We responded to Minns’ second argument that we had not
determined the “full extent of the wrong done by the government
trial lawyers” by noting that Izen, Jones, and O’Donnell had
addressed this subject in their supplemental brief; we
explained that further inquiries would violate the “law of
the case” and “rule of mandate” established by the Court of
Appeals for the Ninth Circuit in Dixon V.
III. The Minns Law Office’s Dixon V Remand Proceeding Fee and
Expense Requests
Respondent, in a status report of July 13, 2005, at 22 n.7,
had suggested that petitioners’ counsel submit their fee
applications for services in the Dixon V remand proceeding to
respondent for review before filing them with the Court.
Respondent indicated that “the possibility exists that
10
Minns’ arguments had been previously argued in Binder’s
July 14, 2005, opening brief (arguing in section IV, subsections
D and E that petitioners were entitled to interest and penalty
reductions) and in Jones’ July 15, 2005, supplemental brief
(arguing in section VII that the Court had not determined the
“depth of respondent’s counsel’s fraud”).
- 23 -
agreement could be reached at least with respect to some portion,
and conceivably all, of the fees requested in a particular application”.
Sticht and Irvine responded to this invitation timely by
providing contemporaneously created time sheets and expense
records to respondent. In October 2005 Sticht began to provide
respondent with timesheets and invoices reflecting work performed
and amounts paid by his clients. In June 2006 Irvine began to
forward time sheets and other documentation to respondent for
review. Sticht and Irvine were thereby able to reach agreement
with respondent on the reasonable amounts of their fees and
expenses well before we set the time for filing all petitioners’
fee and expense requests.11
On May 4, 2007, we ordered all participating petitioners to
submit requests for attorney’s fees and expenses incurred in the
Dixon V remand proceeding by June 8, 2007. On May 29, 2007,
Jones filed a motion, which we granted, to extend the time to
file all such requests to July 8, 2007.
Minns did not initiate contact with respondent’s counsel
on the subject of a negotiated fee and expense award until after
our order of May 4, 2007. Because Minns had not prepared
11
With respect to Sticht’s fees and expenses, see supra note
2; with respect to Irvine’s fees and expenses, see Dixon IX.
- 24 -
contemporaneous timesheets or sent client invoices but was
attempting to prepare timesheets on the basis of Porter & Hedges
records, respondent told Minns that it would not be possible to
reach agreement before the deadline for filing fee applications
and that Minns should file his fee application with the Court.
On June 12, 2007, Williams filed petitioners’ request
for an award of attorney’s fees on behalf of the Hongsermeiers.12
The request covered fees from January 20, 2003, through May 23,
2007, and requested a total of $1,006,629.85 in fees and
$21,363.57 in expenses. Included with the request was an
84-page form of bill dated June 8, 2007, addressed to the
Hongsermeiers.
On July 5, 2007, respondent filed a response to petitioners’
request for an award of attorney’s fees and expenses, noting
numerous errors and inconsistencies in petitioners’ request
of June 12, 2007. For example, according to petitioners’ fee
and expense application entry for October 31, 2005, Minns
and Williams each worked 30 hours that day. Several other
entries conflicted with entries in Binder’s and Irvine’s
timesheets, from which Minns and Williams derived much of
the information used to reconstruct their timesheets.
12
Williams was admitted to the Texas bar in 2001. Sticht’s
associate Boris Orlov was admitted to the California bar in 2002;
Sticht charged and respondent agreed to $175 per hour as the rate
for Orlov’s services in the Dixon V remand proceeding.
- 25 -
Moreover, according to respondent, many of the entries in
petitioners’ fee and expense request placed Minns or Williams
at events for which they were not present. With the response
respondent submitted Exhibits A through J listing respondent’s
specific objections grouped by category.
On September 17, 2007, Williams filed petitioners’ reply to
respondent’s response to petitioners’ original fee and expense
request as well as an amended fee and expense request (unless
otherwise specified, all references to a fee request are to the
amended fee and expense request). In their amended request,
which included another form of bill (85 pages) to the
Hongsermeiers dated August 29, 2007, petitioners reduced their
requested fee award to $967,362.21 but slightly increased the
requested expense award to $21,525.99. In so doing, petitioners
corrected some of the inaccuracies described in respondent’s
response. For example, the entries claiming Minns and Williams
had each worked 30 hours on October 31, 2005, were each changed
to 30 minutes. Petitioners also conceded that they should not
receive any award for fees awarded in Dixon VII, but they did not
concede that they should not receive an award for appellate fees
that they had not presented for our consideration in Dixon VII.
In the original request for fees and expenses of June 12,
2007, and the amended request of September 17, 2007, Williams
asserted that the Hongsermeiers are or remain liable for the
- 26 -
requested fees under an executed contract with the Minns Law
Office. The original and amended request included requests for
“such ‘fees for fees’ as they have shown and will show to this
Court, plus * * * interest on such fees and expenses beginning
January 17, 2003, the day the Ninth Circuit Court of Appeals
ruling [in Dixon V] was filed”. The Hongsermeier test-case
petitioners have never filed a supplemental request for “fees for
fees”.
Petitioners’ reply repeated the assertion that the
Hongsermeiers “are personally liable for massive legal fees”,
but also stated that “they are currently joined by thirty-nine
piggybackers who helped finance the case post [Dixon V]”.
On September 25, 2007, we ordered petitioners to
supplement their amended fee request by filing a copy of the
fee agreement between the Hongsermeiers and Minns with respect
to the Dixon V remand proceeding. On October 1, 2007,
petitioners complied in part with that order by filing a
form of fee agreement with petitioner Richard Hongsermeier
(Fiorella Hongsermeier is not included as a party and the
agreement is signed and dated March 3, 2003, by Richard
Hongsermeier but not by Minns). The agreement provides for the
payment of an up-front fee of $3,500 plus a monthly fee of $100
until the case has been concluded. The agreement contemplates a
similar arrangement with at least 30 non-test-case petitioners.
- 27 -
Although Williams asserts in the September 17 reply that “thirty-
nine piggybackers” have signed up, as yet there is no evidence in
the record of the number and identity of non-test-case
petitioners who may have joined in this arrangement or of
amounts they have actually paid Minns for work done in the
Dixon V remand proceeding.
Other salient terms of the Hongsermeier fee agreement
include:
Accounting. There will be no charges for work
already done.
Fees. * * * Client is responsible for all legal
fees on remand. * * * Client will be credited for
* * * payments [by other persons who sign up]
but remains liable for payment of the entire
legal fee.
Rates. The rate for Michael Minns is $500.00 per
hour. The rate for Enid Williams is $250.00.
The rate for paralegals is $100.00 per hour.
The rate for secretaries is $75.00 per hour.
Covenant. The client agrees and covenants
that: * * *
2. Understands that this agreement is
entered into because the Firm expects
to make a profit on this leg of the
case.
3. The Client understands that the Firm
may earn substantially more than its
normal hourly rate under this agreement
or substantially less. . . . The Firm
will pursue it [disciplinary proceeding
against IRS attorneys] for the public good.
On October 9, 2007, respondent filed a response to
petitioners’ amended fee and expense request; on October 12,
- 28 -
2007, respondent filed a supplement to the October 9, 2007,
response.
Respondent observed in the October 12, 2007, supplement
that in all likelihood the amounts in the amended request for
fees and expenses substantially exceeded what Minns’ clients had
actually paid or were obligated to pay. Respondent argued that
these excess amounts had therefore not been “incurred” within the
meaning of section 6673(a)(2)(B). This is an argument that we
have rejected in Dixon IX with respect to the Porter & Hedges fee
arrangement to represent the Dixons and the DuFresnes in the
Dixon V remand proceeding without cost to them.
Our remaining tasks are to examine respondent’s general
objections to the billing rates claimed by petitioners for the
services of Minns and his staff, respondent’s specific objections
to entries for time allegedly spent (and related expenses) as
unrelated to the Dixon V remand proceeding, and the reliability
of documents submitted with petitioners’ fee request; we conclude
by addressing “overlawyering” with respect to the time remaining
after we have addressed respondent’s general and specific
objections.
Discussion
I. Application of Section 6673(a)(2)(B)
The parties agree that attorney’s fees and expenses should
be awarded under section 6673(a)(2)(B) with respect to all
- 29 -
petitioners who participated in the Dixon V remand proceeding.
Section 6673(a)(2) provides:
(2) Counsel’s liability for excessive costs.--
Whenever it appears to the Tax Court that any attorney
or other person admitted to practice before the Tax
Court has multiplied the proceedings in any case
unreasonably and vexatiously, the Tax Court may
require--
(A) that such attorney or other person pay
personally the excess costs, expenses, and
attorneys’ fees reasonably incurred because of
such conduct, or
(B) if such attorney is appearing on behalf
of the Commissioner of Internal Revenue, that the
United States pay such excess costs, expenses, and
attorneys’ fees in the same manner as such an
award by a district court.
A. General Rules
During the Kersting tax shelter litigation this Court has
awarded attorney’s fees and expenses under section 6673(a)(2)(B)
incurred in proceedings in this Court--Dixon IV, Dixon IX, and
Gridley II--and under section 7430 for fees and expenses incurred
in the Dixon V appellate proceeding--Dixon VII and Young v.
Commissioner, T.C. Memo. 2006-189.
In Dixon IV, Dixon VII, Young, and Dixon IX, we explained
the distinction between fee-shifting prevailing party statutes,
such as section 7430, which are based on substantive policy that
prevailing private parties should be able to recover fees and
expenses from the Government in certain types of cases, and fee
sanction statutes, such as section 6673(a)(2), which emphasize
punishment and deterrence of litigation misconduct by both
- 30 -
private and Government attorneys. See Chambers v. NASCO, Inc.,
501 U.S. 32, 52 (1991); Bus. Guides, Inc. v. Chromatic Commcns.
Enters., Inc., 498 U.S. 533 (1991); Cooter & Gell v. Hartmarx
Corp., 496 U.S. 384, 409 (1990). Fee sanction statutes, such as
section 6673(a), generally are designed to punish and deter
litigation misconduct of the parties, and section 6673(a)(2)(B)
in particular is designed to punish and deter the misconduct of
the Commissioner’s counsel. Section 6673(a)(2) also requires
that the fees and expenses awarded be reasonably related to the
conduct giving rise to the sanction.
Both section 7430 and section 6673(a)(2) limit the award to
reasonable fees and expenses. However, fee-shifting statutes,
such as section 7430, impose additional limitations that do not
apply under the fee sanction statutes, placing an hourly rate cap
on fees, imposing a net worth limitation on taxpayers requesting
reimbursement, and allowing awards to be made only in favor of
prevailing private parties.
B. Meaning of “Incurred” Under Section 6673(a)(2)(B)
Before addressing hourly rates and respondent’s objections
to time spent, we summarily dispose of respondent’s argument that
we should reduce the award because some portion of the fees and
expenses requested has not been “incurred” within the meaning of
section 6673(a)(2)(B). Respondent argues that the fees and
expenses requested have not been “incurred” to the extent they
- 31 -
exceed amounts paid or payable by Minns’ clients for legal
services in the Dixon V remand proceeding.
This is the same argument respondent made in Dixon IX, that
the fees and expenses claimed by Irvine on behalf of his firm for
services in the Dixon V remand proceeding had not been “incurred”
under section 6673(a)(2)(B) because Irvine on behalf of his firm
had agreed with the Dixons and the DuFresnes to represent them in
the Dixon V remand proceeding at no cost except for such fees and
expenses as might be allowed by the Court. In Dixon IX we
rejected respondent’s argument, relying on both section
6673(a)(2)(B) and our inherent power, to hold that respondent had
incurred the obligation to pay those fees and expenses as a
result of the misconduct of his attorneys.
By a parity of reasoning, we reject respondent’s similar
argument in the case at hand. If and to the extent it should
turn out that the reasonable fees and expenses respondent is
otherwise obliged to pay exceed the total amounts paid and
payable by Minns’ clients, we hold that respondent will be
obliged to pay Minns the excess.13
13
Our conclusion in this regard renders moot our doubt that
the Hongsermeiers (who filed net worth affidavits in connection
with Minns’ request for appellate legal fees under sec. 7430)
have ever actually been obligated to pay the full amount of
Minns’ fees and expenses for services in the Dixon V remand
proceeding. One of the orders we shall issue with this opinion
will require Minns to set forth and substantiate the amounts paid
by the Hongsermeier test-case petitioners and his other clients
for services in the Dixon V remand proceeding, pursuant to fee
(continued...)
- 32 -
We now award fees under section 6673(a)(2)(B) for services
Minns and his staff performed in the Dixon V remand proceeding.
To fix a fee award under section 6673(a)(2)(B), we multiply the
number of hours reasonably expended by the attorney’s reasonable
hourly rate. Pennsylvania v. Del. Valley Citizens’ Council, 478
U.S. 546, 563 (1986); Hensley v. Eckerhart, 461 U.S. 424, 433
(1983). To calculate the fee award for Minns’ services, we first
determine reasonable hourly rates for Minns and his staff and
then determine the number of hours Minns reasonably expended in
the remand proceeding.
II. Reasonable Hourly Rates
The hourly rates petitioners claimed for Minns and his
staff, which respondent argues are excessive, are as follows:
$500 per hour for Minns’ services, $250 per hour for Williams’
services, $100 per hour for the paralegal’s services, and $75 per
hour for the secretary’s services. For the reasons discussed
below, we hold that Minns’ and Williams’ claimed rates are
unreasonably high and should be reduced, and that the paralegal’s
and the secretary’s claimed rates should be allowed to stand. We
reduce Minns’ rate to $350 per hour and Williams’ rate to $175
per hour.
13
(...continued)
and expense agreements and otherwise. Minns’ responses to this
order will enable us to determine the amounts of reimbursements
payable to Minns’ various clients and the excess amount, if any,
payable to Minns.
- 33 -
The reasonableness of an attorney’s hourly rate is
determined by the amount that attorneys of like skill in the area
would typically be entitled to for similar work. Harper v.
Commissioner, 99 T.C. 533, 551 (1992). To determine a reasonable
hourly rate for services of Minns and his staff, we first look to
the billing rates of his fellow attorneys in the same matter, the
Dixon V remand proceeding.
A. Minns’ and Williams’ Hourly Rates
Like Minns, Attorneys Jones, Sticht, and Izen represent
private clients from around the United States in tax controversy
work. Like Minns, each of these other attorneys is a sole
practitioner who served as the primary litigator on behalf of his
clients, with assistance from an associate attorney and other
support staff. Jones, Sticht, and Izen all charged $350 per hour
and Sticht charged $175 per hour for the services of his
associate Boris Orlov (Orlov) in the Dixon V remand proceeding.
We use the hourly rates of these attorneys and associate as
guidelines in determining the proper hourly rates for the
services of Minns and Williams.
Services provided by Binder and Irvine (the attorneys of
Porter & Hedges) are not directly comparable to those provided by
Jones, Sticht, Izen, and Minns. By informal agreement of all
counsel, Porter & Hedges, through Binder, played the lead role in
representing all petitioners in the Dixon V remand proceeding.
Porter & Hedges is a mid-sized law firm (approximately 100
- 34 -
lawyers), with greater resources and correspondingly greater
overhead costs. Despite Binder’s role as lead counsel, his
average rate, $367.50 per hour, was not much greater than the
hourly rate of Jones, Sticht, and Izen. Irvine played a
restricted role as Binder’s managing/reviewing partner at Porter
& Hedges; we regard Irvine’s higher average hourly rate, $425 per
hour for far fewer hours, as appropriate.14
Although office location can be a factor in determining a
reasonable hourly rate, it does not outweigh the similarities in
the nationwide services provided by Jones, Sticht, Izen, and
Minns. While the offices of Porter & Hedges, Minns, and Izen are
all in or near Houston, Texas, the offices of Jones and Sticht
are in Las Vegas and Los Angeles, respectively. If we were to
give office location some weight, Minns’ services would be more
comparable to the services of Binder and Irvine than to those of
Sticht and Jones. However, Izen’s office is also in the Houston
area, and Minns’ services during the Dixon V remand proceeding
were more like Izen’s services than the services of Binder and
Irvine. The similarities in the practices of Jones, Sticht,
Izen, and Minns, the similar roles of each in the Dixon V remand
proceeding, and the consistency of the hourly rates of Jones,
Sticht, and Izen outweigh the significance of any differences in
their office locations. Office location is not a factor that
14
We note that respondent did not object to Irvine’s and
Binder’s hourly rates.
- 35 -
influences our holdings of reasonable hourly rates for Minns and
Williams.
Minns’ allowable billing rate should approximate or equal
the rate charged by Jones, Sticht, and Izen. Williams’ hourly
rate should be in the same range as the rate Sticht charged for
Orlov’s services. The hourly rate petitioners request for Minns’
services, $500 per hour, is substantially greater than the $350
hourly rate Jones, Sticht, and Izen charged for their services,
and the rate petitioners request for Williams’ services, $250 per
hour, is substantially greater than the $175 hourly rate Sticht
charged for Orlov’s services. The rates petitioners request for
Minns’ and Williams’ services in the Dixon V remand proceeding
exceed the rates that “‘attorneys of like skill in the area would
typically be entitled for a given type of work’”. See Harper v.
Commissioner, supra at 551 (quoting City of Detroit v. Grinnell
Corp., 495 F.2d 448, 471 (2d Cir. 1974)).
We conclude that the reasonable hourly rates for Minns’s
and Williams’ services are $350 and $175 per hour, respectively.
B. Paralegal’s and Secretary’s Hourly Rates
Petitioners request $100 per hour for paralegal services and
$75 per hour for secretarial services. Because the rate charged
for Minns’ paralegal’s services ($100 per hour) is lower than
both the rates of Jones’ paralegal ($120 per hour) and Porter &
Hedges’ paralegals ($130 per hour), we conclude that $100 per
- 36 -
hour should be allowed to stand as a reasonable rate for Minns’
paralegal’s services.
Minns’ legal secretary provided some services similar to
those performed by the paralegal, such as drafting some legal
documents. It would not be unreasonable to charge $75 an hour
for services of the secretary for which the paralegal charge
would be $100 an hour. We conclude that $75 per hour is a
reasonable rate for Minns’ secretary for the performance of
paralegal type services. The schedule immediately following
reflects petitioners’ amended fee request before and after
applying the reduced rates for Minns and Williams:
Before After
Hours Rate Total Rate Total
Minns 1,533.29 $500 $766,645.00 $350 $536,651.50
Williams 738.27 250 184,567.50 175 129,197.25
Paralegal 124.18 100 12,418.00 100 12,418.00
Secretary 49.98 75 3,748.50 75 3,748.50
Total 2,445.72 — 967,379.00 — 682,015.25
The above reductions in Minns’ and Williams’ hourly rates reduce
petitioners overall request by $285,363.75 ($967,379.00 minus
$682,015.25 equals $285,363.75).
III. Hours Reasonably Expended
To determine the number of hours Minns and his staff
reasonably expended on the Dixon V remand proceeding, we must
first eliminate entries that are clearly unreasonable.
Respondent argues that we should reduce petitioners’ requested
award because certain categories of fee entries are unrelated to
the Dixon V remand proceeding or are otherwise excessive or
- 37 -
duplicative and because Minns’ time entries and billing records
are unreliable.
To be compensable, hours expended in litigation must be
reasonably related to the Dixon V remand proceeding and must not
be excessive or duplicative of other counsel’s efforts. See
Hensley v. Eckerhart, 461 U.S. at 434 (courts need not award fees
for services for which attorneys should not bill their clients);
Saizan v. Delta Concrete Prods. Co., 448 F.3d 795, 800 (5th Cir.
2006) (duplicative work efforts are an abuse of billing
judgment); LaPrade v. Kidder Peabody & Co., 146 F.3d 899, 906
(D.C. Cir. 1998); Napier v. Thirty or More Unidentified Fed.
Agents, 855 F.2d 1080, 1094 (3d Cir. 1988); see also Amlong &
Amlong, P.A. v. Denny’s, Inc., 457 F.3d 1180, 1190 (11th Cir.
2006); Gillespie v. Commissioner, T.C. Memo. 2007-202, affd. 292
Fed. Appx. 517 (7th Cir. 2008); Kenny A. v. Perdue, 454 F. Supp.
2d 1260, 1286 (N.D. Ga. 2006) (referencing the analogous language
of 28 U.S.C. sec. 1927), affd. 532 F.3d 1209 (11th Cir. 2008).
A. Preliminary Comments
Before we address respondent’s arguments that certain fee
entries are unrelated to the Dixon V remand proceeding or
otherwise excessive or duplicative, and then the reliability of
Minns’ time records, we make some general comments about
excessive and duplicative efforts in the Dixon V remand
proceeding.
- 38 -
On reflection, it appears to us that we permitted the Dixon
V remand proceeding to become “over-lawyered”.15 In the absence
of any objection or contrary suggestion by respondent, we
consolidated 27 Kersting project cases and allowed test-case
petitioners represented by Izen, Minns, and Irvine and Binder and
non-test-case petitioners represented by Izen, Sticht, and Jones
and O’Donnell to participate in the Dixon V remand proceeding,
the same 27 cases we had consolidated for the purpose of the
earlier DuFresne remand in response to the DuFresne panel’s
directive regarding efforts to intervene by affected parties.
In retrospect, the interests of economy and efficiency might
well have been better served if we had issued an order to show
cause why participation in the Dixon V remand proceeding should
not be limited to test-case petitioners as they had been
represented by three sets of attorneys in the Court of Appeals in
15
The table below summarizes the hours and legal fees and
expenses (by firm and in total) Kersting project petitioners have
requested for attorney services in the Dixon V remand proceeding:
Attorney Hours Fees Expenses Total
Jones 1,155 $265,717.45 $15,965.97 $281,683.42
Minns 2,246 967,362.21 21,525.99 988,888.20
Izen 2,245 748,674.14 38,248.06 786,922.20
Porter &
Hedges 2,696 980,337.75 57,204.83 1,037,542.58
Total 8,342 2,962,091.55 132,944.85 3,095,036.40
In addition, respondent agreed that non-test-case petitioners
represented by Sticht were entitled to recover fees and expenses
on the order of 764 hours and $237,000 for services of Sticht and
Orlov in the Dixon V remand proceeding (Oct. 4, 2006, order).
See supra note 2.
- 39 -
the appellate proceeding culminating in Dixon V.16 Or, if we had
been sufficiently prescient to foresee, and flexible enough to
respond to, the leading role that Binder would play in the Dixon
V remand proceeding, we might have had Porter & Hedges attorneys
provide exclusive courtroom representation, relegating other
counsel to consulting roles and a “watching brief”. Cf., e.g.,
AARP v. EEOC, 873 F.2d 402 (D.C. Cir. 1989).
Allowing so many attorneys to participate actively in the
Dixon V remand proceeding created an atmosphere in which some
attorneys needlessly duplicated each other’s efforts. We remind
counsel that it is an exercise of poor billing judgment to charge
clients for excessive or duplicative efforts. We need not award
fees where counsel have abused their billing judgment by
attempting to charge for needless duplications of the efforts of
other attorneys in the case. We think that Minns has abused his
billing judgment and that the fees and expenses petitioners claim
are excessive and duplicative, even after giving effect to the
bulk of respondent’s specific objections. See infra Part III.D.17
16
In the Dixon V appeal proceeding, briefing and oral
argument was limited by the Court of Appeals to the test-case
petitioners, represented by Izen (Youngs and Owenses), Minns
(Hongsermeiers), and Binder and Irvine (Dixons and Dufresnes).
Non-test-case petitioners, represented by Jones, Sticht, Izen,
and O’Donnell, were relegated by the Court of Appeals to a
watching brief.
17
We note that, unlike Sticht’s request, Minns’ request
shows no evidence that Minns actually prepared contemporeous
timesheets or that he actually billed his clients for work in the
(continued...)
- 40 -
B. Reasonably Related to Dixon V Remand Proceeding
We now turn to fee entries that respondent specifically
objects to, on the ground that they are not reasonably related to
the remand proceeding: (1) The appeal of Dixon III; (2)
collection, bankruptcy, and probate matters; (3) disciplinary
proceedings against McWade and Sims; (4) a Freedom of Information
Act lawsuit; (5) client relations; (6) petitioners’ June 6, 2006,
motion for reconsideration; (7) consultations with L.T. Bradt;
(8) investigative research in connection with former Commissioner
of Internal Revenue Joseph Nunan; (9) a billing dispute between
Minns and Jones; (10) the closed cases; (11) overhead expenses;
(12) inadequately described entries; and (13) other miscellaneous
entries.
1. Fees Incurred During Appeal of Dixon III
Respondent objects to petitioners’ original fee request for
160.3918 hours of work, amounting to $41,773 in fees, as well as
17
(...continued)
Dixon V remand proceeding at any time before Williams was about
to file Minns’ fee requests with the Court.
18
Two of petitioners’ amended request entries are included
in this figure and are not related to services provided in
connection with the appeal of Dixon III. The two entries are for
1.5 hours for both Minns and Williams on August 21, 2009, for
services provided in connection with the Hongsermeiers’ appeal of
our Dixon IV and Dixon VIII opinions. Because these requested
fees, as well as the requested fees for work done on the appeal
of Dixon III, are requests for fees concerning appellate matters
outside the scope of this case we deal with them together.
- 41 -
$162.42 in expenses, for services provided in connection with the
appeal of Dixon III, as follows:
Rate Hours Amount
Minns $350 82.68 $28,938.00
Williams 175 68.17 11,929.75
Paralegal 100 7.59 759.00
Secretary 75 1.95 146.25
Expenses -- -- 162.42
Total --- 160.39 41,935.42
Respondent argues that these fees are not related to the
Dixon V remand proceeding and that we have already awarded
petitioners attorney’s fees and expenses for Dixon III appellate
fees in our Dixon VII opinion.
Although petitioners in their response to respondent’s
response conceded that they should not receive an award for fees
we already awarded in Dixon VII, petitioners did not adjust their
requested award to reflect their concession. In their amended
request, petitioners changed only two of the entries that
respondent objects are related to appellate fees; namely the two
October 31, 2005, entries relating to Minns’ and Williams’
services that petitioners changed from 30 hours to 30 minutes
each. Moreover, petitioners argue that the fees relating to the
appeal of Dixon III that they are now requesting in the pending
request are related to the cost of distributing to petitioners
the award we granted in Dixon VII.
We agree with respondent. In Dixon VII we awarded fees for
Minns’ services related to the appeal of Dixon III. Petitioners’
- 42 -
final opportunity to apply for fees related to the appeal of
Dixon III has passed. Therefore, we will reduce petitioners’
award by 101.39 hours, amounting to $26,285.50--to reflect the 30
hours to 30 minutes corrections--as well as $162.42 in expenses:
Rate Hours Amount
Minns $350 53.18 $18,613.00
Williams 175 38.67 6,767.25
Paralegal 100 7.59 759.00
Secretary 75 1.95 146.25
Expenses -- -- 162.42
Total --- 101.39 26,447.92
2. Collection, Bankruptcy, and Probate Matters
Respondent also objects to petitioners’ fee requests for
services relating to petitioners’ collection, bankruptcy, and
probate matters, citing 91.76 hours of services, amounting to
$25,544.75, attributed as follows:
Rate Hours Amount
Minns $350 54.96 $19,236.00
Williams 175 35.05 6,133.75
Paralegal 100 1.75 175.00
Total --- 91.76 25,544.75
Respondent concedes that part of the 3 hours claimed by
petitioners for a March 24, 2003, entry for Minns’s services is
allowable. The entry at issue states that Minns reviewed a
memorandum concerning Texas and Florida probate law, to which
respondent objects, and that Minns conferred with Binder
concerning “remand issues” and the “Thompson settlement”, which
respondent concedes is allowable. The entry at issue does not
allocate the time spent on each task, and respondent’s objection
to this entry does not provide a method of allocation. Left to
- 43 -
our own devices, we allocate 1.5 hours to the review of the
memorandum on Texas and Florida probate law, which we disallow,
as indicated below. We also allocate 1.5 hours to Minns’
conference with Binder on “remand issues” and the “Thompson
settlement”, which we allow as compensable.
Respondent asserts that petitioners’ collection, bankruptcy,
and probate matters are not related to the primary mandate of the
Court of Appeals and the Dixon V remand proceeding. Petitioners
urge us to award fees for these entries, claiming that, as a
result of respondent’s misconduct, various petitioners were
financially harmed so as to require the various enumerated
services.
We agree with respondent. Petitioners’ difficulties in
collection, bankruptcy, and probate matters are not directly
related to the Dixon V remand proceeding. These fees were not
incurred at the trial level in the Tax Court but rather relate to
petitioners’ personal financial and legal problems. We therefore
reduce petitioners’ requested award by 90.26 hours of work,
amounting to $25,019.75 in fees related to collection,
bankruptcy, and probate matters and to reflect the 1.5 hours for
Minns’ conference with Binder on “remand issues” and the
“Thompson settlement”, which respondent concedes is allowable:
Rate Hours Amount
Minns $350 53.46 $18,711.00
Williams 175 35.05 6,133.75
Paralegal 100 1.75 175.00
Total --- 90.26 25,019.75
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3. Disciplinary Proceedings Against McWade and Sims
Respondent objects to our awarding fees for Minns’ efforts
in bringing disciplinary actions against McWade and Sims,
amounting to 111.28 hours of services and $30,396.75 in fees,
attributed as follows:
Rate Hours Amount
Minns $350 76.85 $26,897.50
Williams 175 0.75 131.25
Paralegal 100 33.68 3,368.00
Total --- 111.28 30,396.75
In their amended request, petitioners changed two of the
entries that respondent objects to as related to Minns’
disciplinary actions against McWade and Sims; namely two entries
dated February 6, 2009, which reduced the hours claimed for
services by Minns from 12 hours to 2 hours and the hours claimed
for services by Minns’ paralegal from 12 hours to 4.45.
Respondent argues that the attorney disciplinary proceedings
were not adequately related to the Dixon V remand proceeding. We
agree with respondent. Disciplinary proceedings against McWade
and Sims are not related to our determination of the terms of the
Thompson settlement. As Minns indicated in the Hongsermeier fee
agreement, this was pro bono activity for which he did not expect
to be compensated. We therefore reduce petitioners’ fee request
by 93.73 hours of services, amounting to $26,141.75, to reflect
the amended February 6, 2009, entries reducing the hours claimed
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for Minns’ services from 12 hours to 2 hours and the hours
claimed for Minns’ paralegal from 12 hours to 4.45 hours:
Rate Hours Amount
Minns $350 66.85 $23,397.50
Williams 175 0.75 131.25
Paralegal 100 26.13 2,613.00
Total --- 93.73 26,141.75
4. Freedom of Information Act Lawsuit
Petitioners’ fee request also includes entries relating to a
Freedom of Information Act lawsuit that Minns brought to obtain
IRS personnel records as part of an effort to determine the full
extent of IRS misconduct in connection with the Thompson
settlement, amounting to 20.88 hours of services and $5,263 in
fees, attributed as follows:
Rate Hours Amount
Minns $350 9.55 $3,342.50
Williams 175 10.50 1,837.50
Paralegal 100 0.83 83.00
Total --- 20.88 5,263.00
While the personnel records that Minns sought may have been
of use in the disciplinary proceedings against McWade and Sims,
the records have no bearing on our reconstruction of the terms
of the Thompson settlement, and are not sufficiently related to
the Dixon V remand proceeding. As a result, we reduce
petitioners’ request by 20.88 hours of services, amounting to
$5,263.
5. Client Relations
Respondent objects to entries that respondent refers to as
“client relations”, which respondent asserts should be
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disallowed. These entries total 641.67 hours, amounting to
$174,474.50, attributed as follows:
Rate Hours Amount
Minns $350 396.38 $138,733.00
Williams 175 159.49 27,910.75
Paralegal 100 55.72 5,572.00
Secretary 75 30.08 2,256.00
Total --- 641.67 174,471.75
In their amended request, petitioners removed 16 entries
amounting to 36.18 hours of Minns’ services concerning items that
respondent argues should be disallowed because they concern
“client relations.” After removal of the 36.18 hours the
remaining entries total 605.49 hours, amounting to $161,809.75,
attributed as follows:
Rate Hours Amount
Minns $350 360.20 $126,070.00
Williams 175 159.49 27,910.75
Paralegal 100 55.72 5,572.00
Secretary 75 30.08 2,256.00
Total --- 605.49 161,808.75
Of the remaining entries, most relate to generalized client
relations. Respondent’s specific objections to several entries
related to client relations lead us to conclude that some of
those entries should be (1) completely disallowed--e.g.,
communications with pro se petitioners; (2) fully allowed--e.g.,
entries relating to compensable calculations of clients’
deficiencies; or (3) partially allowed--i.e., entries that are
only partially attributable to client relations. Nevertheless,
we are satisfied that in addressing the entries relating to
client relations together we will arrive at an overall result
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approximating the result we would arrive at if we were to address
the remaining entries by breaking them down into specific
subcategories. Therefore we will address the remaining entries
as though they are all generalized client relations.
Petitioners argue that the remaining entries of
communications between counsel and various clients were directly
related to the Dixon V remand proceeding. We agree with
respondent’s objection in part, but decline to disallow entries
related to client relations in their entirety.
We may award fees for time spent on client relations if that
time is sufficiently related to the matter entitling petitioners
to a fee and expense award. Dixon VII; Gridley II. Where
petitioners do not provide the subject matter for client
communications, we may determine that a portion of those
communications is compensable. Dixon VII; Gridley II. In Dixon
VII and Young, in applying section 7430, and in Gridley II, in
applying section 6673, we determined that if it was not clear
that a fee or expense entry describing client communications was
compensable, we would assume 50 percent of the time spent on the
communication is compensable.
In Dixon VII, we addressed the issue of client relations
when we evaluated whether to award fees related to Binder’s and
Irvine’s client conferences. Because we did not know the subject
matter of these conferences, we assumed that 50 percent of the
time spent in the conferences related to the appeal (the matter
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for which we were then awarding fees) and the remaining 50
percent related to noncompensable, unrelated matters (client
relations and “hand holding”). We then awarded fees for the
remaining portion of the time, which we allocated to appeal-
related matters.
In Young v. Commissioner, T.C. Memo. 2006-189, we continued
this approach in evaluating fee and expense entries that did not
specify the subject matter of client communications. We
allocated 50 percent of those communications to the appeals,
granting an award for that portion of the time, and 50 percent to
unrelated, noncompensable matters.
In Gridley II, we applied the foregoing approach established
in Dixon VII and Young in evaluating client relations entries for
the purposes of a request for fees and expenses under section
6673(a)(2)(B). Using this approach we reduced petitioners award
by 50 percent of requested fees and expenses relating to client
communications where the subject matter of those communications
was unclear.
Here we apply the approach used in Dixon VII, Young, and
Gridley II in evaluating client relations entries. We therefore
reduce petitioners’ award by 50 percent of the remaining client
relations entries, or 302.75 hours, amounting to $80,905.25,
attributable as follows:
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Rate Hours Amount
Minns $350 180.10 $63,035.00
Williams 175 79.75 13,956.25
Paralegal 100 27.86 2,786.00
Secretary 75 15.04 1,128.00
Total --- 302.75 80,905.25
6. Motion for Reconsideration
Petitioners’ original fee application included 39.46 hours
of services related to the Hongsermeier test-case petitioners’
June 6, 2006, motion for reconsideration, for which petitioners
claim $11,448.75 in fees, attributable as follows:
Rate Hours Amount
Minns $350 28.07 $9,824.50
Williams 175 6.47 1,132.25
Paralegal 100 4.92 492.00
Total -- 39.46 11,448.75
In their amended request, petitioners removed a June 22,
2006, entry of 2.92 hours of Minns’ services for an item that
respondent objects is related to a motion for reconsideration of
this Court’s Dixon VI opinion and therefore is not allowable in
this proceeding.
Respondent argues that because the June 6, 2006, motion for
reconsideration was frivolous and that any related fees were not
reasonably incurred, we should disallow fees for services related
to the motion for reconsideration. Because some of the arguments
in the motion are being made by some test-case petitioners in the
pending appeals of Dixon VI and VIII, we do not characterize
these arguments as frivolous. However, we still agree that the
fee request for work on the motion for reconsideration should be
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disallowed. Petitioners’ motion for reconsideration was nothing
more than a rehash of arguments in the briefs previously filed by
Binder, Jones, and Sticht. We will reduce petitioners’ award by
36.54 hours, amounting to $10,426.75 in fees, to reflect the
removal in petitioners’ amended request of the June 22, 2006,
entry for 2.92 hours of Minns’ services:
Rate Hours Amount
Minns $350 25.15 $8,802.50
Williams 175 6.47 1,132.25
Paralegal 100 4.92 492.00
Total --- 36.54 10,426.75
7. Entries Related to L.T. Bradt
Respondent objects to 35 hours of services, amounting to
$10,780, that are related to Minns’ and Williams’ communications
with L.T. Bradt, attorney for Kersting. Those hours are
attributable as follows:
Rate Hours Amount
Minns $350 26.60 $9,310
Williams 175 8.40 1,470
Total --- 35.00 10,780
Respondent claims that any communications with Bradt were
not reasonably related to the proceeding on remand. We agree.
Bradt represented Kersting during the original trial of the test
cases, during the evidentiary hearing, and in Kersting’s personal
deficiency case, assigned docket No. 7448-96. See Kersting v.
Commissioner, T.C. Memo. 1999-197.
Petitioners did not respond to respondent’s objections or
otherwise enlighten the Court as to the purpose or benefits to
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petitioners of the consultations with Bradt, and we disallow them
in their entirety.
8. Entries Related to Joseph Nunan
Respondent objects to 4 hours of entries, amounting to
$737.50, for research related to former Commissioner of Internal
Revenue Joseph Nunan (Nunan). Those hours are attributable as
follows:
Rate Hours Amount
Minns $350 1.50 $525.00
Paralegal 100 1.00 100.00
Secretary 75 1.50 112.50
Total --- 4.00 737.50
We agree with respondent. The career of Nunan, who resigned
in disgrace from the Bureau of Internal Revenue more than 40
years before the issuance of Dixon II, bears no relationship to
the Dixon V remand proceeding. Accordingly, we reduce
petitioners’ award by 4 hours of services, amounting to $737.50.
9. Chapin Billing Dispute
Respondent objects to 4.38 hours of entries related to a
billing dispute between Minns and Jones. Those hours are
attributable as follows:
Rate Hours Amount
Minns $350 1.98 $693
Williams 175 2.40 420
Total --- 4.38 1,113
Both Minns and Jones had filed entries of appearance for
petitioners Bryce H. and Reba E. Chapin (the Chapins). On
October 30, 1992, Jones and O’Donnell filed a joint entry of
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appearance for the Chapins. On May 17, 1994, O’Donnell filed a
notice with the Court, designating Jones as counsel to receive
service. On May 31, 1994, O’Donnell filed a motion to withdraw
from representation of the Chapins, which we granted on June 2,
1994.
Subsequently, on July 22, 2003, Minns and Williams filed an
entry of appearance on behalf of the Chapins. Jones never filed
a motion to withdraw as counsel. However, on May 17, 2007, it
was Minns who signed the Chapins’ stipulated decision documents.
As of the date of this opinion, Jones remains the attorney of
record for the Chapins.
The billing dispute between Minns and Jones is not something
for which Minns could bill petitioners. Under Hensley v.
Eckerhart, 461 U.S. at 438, it would be inappropriate to award
fees for work related to a billing dispute. Even though the
clients might have been willing to pay for such services if they
really wanted to replace their prior counsel, we do not believe
that respondent should be saddled with these fees. Accordingly,
we reduce petitioners’ award by 4.38 hours of services, amounting
to $1,113 in fees.
10. Closed Cases
Respondent also objects to 7.14 hours of entries related to
motions to vacate stipulated decisions in cases settled before
and after the trial in Dixon II. Those hours are attributable as
follows:
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Rate Hours Amount
Minns $350 2.34 $819.00
Williams 175 3.67 642.25
Paralegal 100 1.13 113.00
Total --- 7.14 1,574.25
We agree with respondent as to 5.64 hours respondent
objected to on the grounds that those entries were related to
closed cases which are the subject of our later opinions in
Hartman I and II and are not reasonably related to the Dixon V
remand proceeding. Early on in the Dixon V remand proceeding we
made it clear that the subject of reopening the closed cases
would not be addressed in the Dixon V remand proceeding.
Accordingly, in regard to petitioners’ fee request in
relation to closed cases, we will reduce petitioners’ award by
5.64 hours amounting to $1,180.50 in fees which are attributable
as follows:
Rate Hours Amount
Minns $350 1.59 $556.50
Williams 175 2.92 511.00
Paralegal 100 1.13 113.00
Total --- 5.64 1,180.50
The remaining 1.5 hours relate to entries on February 14,
2005, which state that Minns and Williams each spent .75 hour to
“review motion to compel settlement as supplement to motion for
leave to file motion to vacate decision.” We interpret these
entries to relate to a “Motion for Summary Judgment of a 100
percent Discount as a Sanction” which was filed by Attorneys
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Jones and O’Donnell on January 31, 2005. However, in Gridley II
we disallowed any award for services in preparing that motion.
See Gridley II, Part II.J. Likewise, in this case we disallow
fees incurred in reviewing that motion. Accordingly, we further
reduce petitioners’ award by 1.5 hours amounting to $393.75,
attributable as follows:
Rate Hours Amount
Minns $350 .75 $262.50
Williams 175 .75 131.25
Total --- 1.50 393.75
11. Overhead Expenses
Respondent has identified several fee entries related to
overhead expenses. These entries total 9.59 hours19 of the
secretary’s services, amounting to $719.25 in fees and $122 for
“overtime air conditioning” on January 5, 2003. Generally,
19
Of respondent’s objection to administrative secretarial
services, 7.32 hours of the 9.59 hours of entries respondent
objects to are not included among respondent’s other objections.
The 1.5-hour entry dated Feb. 21, 2003, is included in
respondent’s objections to entries related to Joseph Nunan,
discussed supra part III.B.8. The .77-hour entry dated Feb. 21,
2003, is included in respondent’s objections to excessive time
spent on the May 30, 2003, status report, discussed infra part
III.D.
Furthermore, petitioners’ amended fee and expense request
includes 49.98 hours of entries related to the secretary’s
services. Respondent has objected to 34.3 hours of these entries
for reasons other than their being an overhead expense. Because
respondent has expressly objected to only 41.62 hours of the
secretary’s services, we assume that respondent did not intend to
object to the remaining 8.36 hours of the secretary’s services.
As a result, we have only included 7.32 of the 49.98 hours in our
calculation of the total number of hours to which respondent
objects.
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overhead expenses, such as routine administrative tasks, are not
properly billable to clients and thus cannot be billed to
respondent. Hensley v. Eckerhart, supra at 434; Young v.
Commissioner, T.C. Memo. 2006-189.
a. Secretary’s Services
Some of the services the secretary provided are similar to
those of a paralegal. For example, one of the secretary’s time
entries, dated August 5, 2003, states: “Preparation of all
attorney responses to 7/11/03 Court order.” Another entry, dated
February 18, 2004, states: “Preparation of pleadings[.]
Preparation of response to Court’s Feb. 4 order for filing.”
These types of services are directly related to the Dixon V remand
proceeding and are compensable.
The secretary’s services to which respondent objects are as
follows: (1) 1.5 hours on February 21, 2003, for “Draft letter to
NY Bar association regarding Nunan finalized and send out along
with letter to clients re[:] same”; (2).77 hour on May 29, 2003,
described as “File Prepare for filing and send out status report”;
(3) 1 hour on August 25, 2003, described as “Preparation of travel
plans for September 5 status conference”; (4) 2.02 hours on August
11, 2004, described as “Preparation for travel plans for Minns and
Williams, send itinerary to clients attending hearing”; (5) 2.93
hours on September 11, 2004, described as “Preparation for trial
strategy meeting,”; (6) .52 hour on May 16, 2007, described as
“File Draft [sic] cover letter and file Hongsermeier notice of
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appearance with Tax Court”; and (7) .85 hour on May 18, 2007,
described as “Preparation of government [sic] status report for
distribution and distribute”.
In Young we explained: “As any billing attorney can attest,
these are the types of attorney time charges that, however
necessary the underlying activity, are difficult to justify on a
client invoice.” Because these are not activities for which Minns
could bill his clients, we will not award them to petitioners.
However, because we disallowed the entry dated February 21, 2003,
in our section dealing with Minns’ 1.5 hours of research
concerning Nunan, we will not reduce petitioners’ award twice for
that entry. Accordingly, we reduce petitioners’ requested award
by 8.09 hours of the administrative secretarial services,
amounting to $606.75 in fees.
b. Overtime Air Conditioning
Unlike the entries pertaining to the secretary’s services,
air conditioning is an overhead expense. We therefore reduce
petitioners’ requested expense award by the $122 in expenses
pertaining to overtime air conditioning.
12. Inadequately Described Entries
Respondent also claims that 16.16 hours of the requested
fees and $11,904.03 in expenses in petitioners’ current
application are not adequately described so that we can determine
whether those entries are related to the proceeding on remand. Of
the 16.16 hours, 9.32 are attributable to Minns and 6.84 are
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attributable to Williams. However, in their amended fee request
petitioners deleted 2.83 hours of Minns’s services on June 5,
2003.
With regard to the remaining 13.33 hours (16.16 minus 2.83
equals 13.33), we agree with respondent that those entries are too
vague to enable us to determine whether they are reasonably
related to the Dixon V remand proceeding. For example, one entry
dated November 29, 2004, claims that Minns spent 1.82 hours
“review[ing] Tax Court orders and pleadings”. Because we cannot
determine whether these Tax Court orders were related to the Court
of Appeals for the Ninth Circuit’s primary mandate or another
matter entirely, we cannot determine whether the 1.82 hours are
reasonably related to the proceeding on remand.
We also agree with respondent that the expenses totaling
$11,904.03 are inadequately described. The entries refer to $600
for “pilot group meetings”, $1,200 in long distance charges
between 2003 and 2006, $10,004.03 for copying and mailing
expenses, and $100 for a “small group lunch”.
We cannot determine the content or subject matter of the
pilot group meetings, long distance phone calls, copied and mailed
documents, or “small group lunch”. We will therefore follow the
same approach as discussed in our “Client Relations” section,
supra, and reduce the award for these expenses by 50 percent.
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Therefore, we reduce petitioners’ requested award by 13.33 hours,
amounting to $3,468.50 in fees, as well as $5,952.02 in expenses,
allocable as follows:
Rate Hours Amount
Minns $350 6.49 $2,271.50
Williams 175 6.84 1,197.00
Expenses -- -- 5,952.02
Total --- 13.33 9,420.52
13. Miscellaneous
Respondent also objects to 31.77 hours of entries for
miscellaneous reasons. Of these, 21.74 are attributable to Minns,
5.08 are attributable to Williams, and 4.95 are attributable to
the paralegal, as follows:
Rate Hours Amount
Minns $350 21.74 $7,609
Williams 175 5.08 889
Paralegal 100 4.95 495
Total --- 31.77 8,993.00
We will address in turn respondent’s miscellaneous objections
to entries relating to the services of Minns, Williams, and the
paralegal.
a. Minns’ Services
The 21.74 hours attributable to Minns’ services are as
follows: 2 hours on April 30, 2003, 5.83 hours on April 30, 2003,
.5 hour on May 8, 2003, 1 hour on June 30, 2003, 1 hour on January
5, 2004, .83 hour on January 21, 2004, 2 hours on September 28,
2004, .5 hour on December 30, 2004, .5 hour on February 4, 2005,
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1 hour on February 25, 2005, .25 hour on February 28, 2005, 3.97
hours on May 8, 2005, 1.08 hours on May 10, 2005, 1 hour on May
18, 2006, and .28 hour on May 15, 2007.
The entry dated April 30, 2003, claims that Minns spent 2
hours that day discussing petitioners’ tax liability with Snell
(the accountant). Respondent argues that these hours are not
sufficiently related to the proceeding on remand. We disagree;
calculating petitioners’ tax liabilities was essential to the
remand proceeding. Moreover, Snell’s participation in the remand
proceeding was so extensive that it resulted in Snell replacing
Minns at the counsel table during the Las Vegas trial session.
Thus, we make no adjustments to petitioners’ award for this entry.
The entry dated April 30, 2003, claims that Minns spent 5.83
hours that day researching tax shelters. Respondent claims that
this research is not sufficiently related to the proceeding
following the Court of Appeals for the Ninth Circuit’s primary
mandate in Dixon V. We agree with respondent and reduce
petitioners’ award by 5.83 hours of Minns’ services related to
researching tax shelters.
The entry dated May 8, 2003, claims that Minns spent .5 hour
that day discussing a status report with Binder. Respondent
objects that Porter & Hedges’ timesheets indicate that the
discussion lasted only .3 hour. We think that a .2-hour time
difference is reasonable and decline to reduce petitioners’ award
relating thereto.
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The entry dated June 30, 2003, claims that Minns spent 1 hour
that day in a telephone conference with Binder. Respondent argues
that the timesheets of Porter & Hedges reflect that the conference
lasted no more than .5 hour. We agree with respondent and reduce
the amount awarded for this entry by .5 hour.
The entry dated January 5, 2004, claims that Minns spent 1
hour reviewing the Tax Court Rules and speaking to Wolfe Schroeter
(Schroeter), an attorney listed as practicing family law in Texas.
Respondent argues that this entry is not sufficiently related to
the proceeding on remand. We agree.
Petitioners have not shown that Minns’ review of the Tax
Court Rules and consultation with Schroeter were reasonably
related to the Dixon V remand proceeding. Moreover, petitioners
have not responded to respondent’s contention that Schroeter does
not practice tax law. Without elaboration, we cannot determine
what connection–-if any–-Minns’ conversation with Schroeter has
with ascertaining the terms of the Thompson settlement. We
therefore reduce petitioners’ award for this entry by 1 hour of
Minns’s services.
The entry dated January 21, 2004, claims that Minns spent .83
hour reviewing a letter from Binder and calling Binder.
Respondent objects that this conflicts with the Porter & Hedges
timesheets, which indicate Minns and Binder’s telephone
conversation lasted .5 hour. Even if the telephone conversation
lasted only .5 hour, we do not think it is unreasonable for
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petitioners to request an award for .83 hour for this entry. If
we take into account that Minns not only spoke to Binder but also
reviewed Binder’s letter, it is reasonable that Minns’ timesheet
reflects a longer period than does Porter & Hedges’. Therefore,
we allow this entry in its entirety.
The entry on September 28, 2004, claims that Minns spent 2
hours reviewing a letter from Binder, written to IRS Chief Counsel
B. John Williams (B.J. Williams). Respondent objects that there
is no record of a letter from Binder to B.J. Williams reflected in
Binder’s timesheets. We disagree with respondent.
On January 25, 2005, Binder recorded that he drafted and
revised a letter to B.J. Williams and sent a copy of the letter to
all counsel of record for review. There is a discrepancy between
Binder’s and Minns’ entries as to when the proposed letter to B.J.
Williams was written, which, as previously mentioned, is not the
first time Minns’ entries have been inconsistent with Binder’s.
However, we are satisfied, notwithstanding respondent’s objection,
that Minns spent 2 hours reviewing Binder’s draft letter. We note
in passing that respondent did not object to the time that Binder
spent in preparing the letter and that possibly the letter was
never sent. We will not reduce petitioners’ fee award for this
entry.
The entry dated December 30, 2004, claims that Minns spent .5
hour reviewing a stipulation to take the deposition of Peter D.
Bakutes (Bakutes), Deputy Regional Counsel for Tax Litigation for
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the Western Region in San Francisco. Respondent argues that
Bakutes’ testimony had already been taken on December 7, 2004.
However, contrary to respondent’s objection, the stipulation to
take Bakutes’ testimony on December 7, 2004, was filed with the
Court on December 8, 2004. Nonetheless we will not award any fees
for Minns’ review of the stipulation to take Bakutes’ testimony.
The document contained less than one full page of text.
Additionally, it was of little importance on December 8, 2004,
because Bakutes’ testimony had already been taken. Therefore,
Minns should have expended no more than a de minimis amount of
time reviewing the stipulation to take Bakutes’ testimony.
Accordingly, we will reduce petitioners’ requested award by .5
hour of Minns’ services, amounting to $175 in fees.
The entry dated February 4, 2005, claims that Minns spent .5
hour that day reviewing petitioners’ second motion for a hearing,
which Binder filed on February 3, 2005. Because the second motion
for a hearing was related to the Dixon V remand proceeding and the
hearing was later held in Washington, D.C., we allow this entry in
its entirety.
The entry dated February 25, 2005, claims that Minns spent 1
hour that day reviewing an order issued on February 22, 2005.
Respondent argues correctly that no order was issued on February
22, 2005. We thus reduce petitioners’ award by 1 hour, amounting
to $350 in fees.
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The entry dated February 28, 2005, claims that Minns spent
.25 hour reviewing an order issued February 24, 2005. Respondent
objects that we did not issue an order on February 24, 2005. We
agree with respondent and reduce petitioners’ award by .25 hours
of Minns’ services, amounting to $87.50 in fees.
The entry dated May 8, 2005, claims that Minns spent 3.97
hours that day reviewing Binder’s draft supplement to petitioners’
motion to allocate the burden of proof, which petitioners claim
was filed on September 9, 2004. Respondent argues that no
supplement to the motion to allocate the burden of proof was ever
filed. We agree with respondent, and we need not award fees for
hours wasted through inefficiency. See Hensley v. Eckerhart, 461
U.S. at 436-437; Young v. Commissioner, T.C. Memo. 2006-189.
Therefore, we will reduce petitioners’ requested award by 3.97
hours of Minns’ services, amounting to $1,389.50 in fees, related
to this entry.
The entry dated May 10, 2005, claims that Minns spent 1.08
hours on phone calls with Binder and a client conference.
Respondent objects that Porter & Hedges’ timesheets do not reflect
that Minns and Binder spoke on that date. We agree with
respondent that petitioners should not receive an award for time
attributable to a conference with Binder that never happened.
Accordingly, we will reduce the amount awarded to petitioners by
50 percent.
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We also note that the remaining portion of the entry is
attributable to nonspecific client communications. For the
reasons discussed in our “Client Relations” section, supra, we
have determined that we will award only 50 percent of the
requested award for entries pertaining to client communications
that do not specify the subject matter of those communications.
We reduce petitioners’ award pertaining to the entry dated May,
10, 2005, by 75 percent or .81 hour of Minns’ services, amounting
to $283.50 in fees.
The entry dated May 18, 2006, claims that Minns spent 1 hour
in conference with a client and in a telephone conference with all
counsel. Respondent objects, arguing that the Porter & Hedges
timesheets indicate that the conference lasted only .5 hour. We
agree with respondent that the conference was only .5 hour.
However, the entry indicates that Minns also held a conference
with a client. By inference, the remaining .5 hour of the May 18,
2006, entry is attributable to that client conference. Because we
have determined that we will award only 50 percent of nonspecific
client relations entries, we reduce the award for this entry by
.25 hour, which is 50 percent of the .5 hour attributable to a
client conference, amounting to $87.50 in fees.
The entry dated May 15, 2005, states that Minns spent .28
hour that day composing an email to Snell regarding stipulated
decisions in the Chapin and Meyner cases. Respondent argues that
these stipulated decisions are not sufficiently related to the
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proceeding on remand. We agree and reduce petitioners’ requested
award by .28 hour. Therefore, after reviewing respondent’s
miscellaneous objections to Minns’ fee entries, we have reduced
petitioners’ requested award by 14.39 hours of Minns’ services,
totaling $5,036.50 in fees.
b. Williams’ Services
The 4.33 hours of Williams’ services respondent objects to
comprise: .5 hour on January 5, 2004, 2 hours on September 28,
2004, .5 hour on February 4, 2005, .25 hour on February 28, 2005,
and 1.08 hours on May 13, 2005.
The entry dated January 5, 2004, states that Williams spent
.5 hour reviewing Tax Court Rules and speaking with Schroeter.
Respondent objects that these activities are not sufficiently
related to the proceeding on remand. We agree with respondent for
the same reasons as those in our discussion of a nearly identical
entry referring to Minns’ services. See supra part III.B.13.a.
We reduce petitioners’ requested award by .5 hour of Williams’
services, amounting to $87.50 in fees.
The entry dated September 28, 2004, states that Williams
spent 2 hours reviewing a “memo” Binder had written to B.J.
Williams. For the reasons provided in our discussion of a nearly
identical entry related to Minns’ review of the proposed letter to
B.J. Williams, we decline to make any adjustments to petitioners’
award for this entry. See supra part III.B.13.a.
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The entry dated February 4, 2005, states that Williams spent
.5 hour reviewing petitioners’ second motion for a hearing, which
Binder filed on February 3, 2005. Respondent argues that this is
not sufficiently related to the proceeding on remand. We
disagree. This motion resulted in our ordering the final hearing
session in Washington, D.C. We will not reduce petitioners’
requested award for this entry.
The entry dated February 28, 2005, states that Williams spent
.25 hour reviewing an order we issued on February 24, 2005.
Respondent argues correctly that no order was issued on February
24, 2005. Accordingly, we reduce petitioners’ requested award by
.25 hour of Williams’ services.
The entry dated May 13, 2005, states that Williams spent 1.08
hours in a conference with a client, followed by a conference with
Minns and Binder. Respondent objects that the Porter & Hedges
timesheets do not reflect a teleconference on that date. We agree
with respondent. For the same reasons as those in our discussion
of respondent’s objection to a nearly identical entry related to
Minns’ services, see supra part III.B.13.a, we reduce petitioners’
award by .81 hour, 75 percent of the value of this entry.
After reviewing respondent’s miscellaneous objections to
Williams’ services, we reduce petitioners’ requested award by a
total of 1.56 hours of Williams’ services, amounting to $273 in
fees.
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c. Paralegal Services
Respondent raises several miscellaneous objections to 4.95
hours of paralegal services. Those 4.95 hours comprise the
following entries: .5 hour on February 18, 2003, 1.45 hours on
February 19, 2003, and 3 hours on October 23, 2003.
The entry dated February 18, 2003, states that the paralegal
spent .5 hour preparing a letter to be sent to B.J. Williams.
Respondent argues that the letter to B.J. Williams was not
sufficiently related to the proceeding on remand. We disagree for
the reasons stated in our earlier discussion of a similar entry
pertaining to Minns’ services. See supra part III.B.13.a.
Therefore we will not deduct any portion of this time entry from
petitioners’ requested award.
The entry dated February 19, 2003, states that Minns’
paralegal spent 1.45 hours preparing contracts to send to the new
pilot group. Respondent objects that these are engagement
agreements and not part of the Dixon V remand proceeding. We
agree with respondent; engagement agreements are not sufficiently
related to the Dixon V remand proceeding to merit our awarding
fees for preparing them. We adjust petitioners’ requested award
downward by 1.45 hours of paralegal services, amounting to $145.
The entry dated October 23, 2003, states that Minns’
paralegal spent 3 hours preparing a status report. Respondent
objects that Binder, not Minns, prepared the status report and
that 3 hours is excessive for preparing an eight-page status
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report. We agree with respondent; 3 hours is excessive for
reviewing an eight-page status report. We think that 1 hour is a
reasonable amount of time to have spent reviewing an eight-page
status report. We reduce petitioners’ requested award by 2 hours
of the paralegal’s services, amounting to $200 in fees.
Therefore, after considering respondent’s objections to
miscellaneous fee entries related to the paralegal’s services, we
reduce petitioners’ requested award by an additional 3.45 hours in
paralegal time, amounting to $345 in fees.
d. Total
Accordingly, we deduct a total of 19.40 hours of entries
corresponding to respondent’s miscellaneous objections, amounting
to $5,654.50 in fees. Of these hours, 14.64 are attributable to
Minns’ services, 1.56 are attributable to Williams’ services, and
3.45 are attributable to Minns’ paralegal’s services.
Rate Hours Amount
Minns $350 14.39 $5,036.50
Williams 175 1.56 273.00
Paralegal 100 3.45 345.00
Total --- 19.40 5,654.50
14. Total Reductions for Entries Not Reasonably Related
to Dixon V Remand Proceeding
After examining the entries that respondent objects to as not
reasonably related to the Dixon V remand proceeding, we have
reduced petitioners’ requested award by 736.89 hours of services,
amounting to $197,976.50 in fees and $6,236.44 in expenses.
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Therefore, after our reductions in response to respondent’s
objections, petitioners would be left with an award of $484,038.75
in fees (tabulated below) and $15,289.55 in expenses.
Hours Hourly
Requested Disallowed Remaining Rate Award
Minns 1,533.29 441.59 1,091.70 $350 $382,095.00
Williams 738.27 194.06 544.21 175 95,236.75
Paralegal 124.18 74.66 49.52 100 4,952.00
Secretary 49.98 26.58 23.40 75 1,755.00
Total 2,445.72 728.47 1,717.25 -- $484,038.75
C. Reliability of Documentation
Respondent has asserted and Minns does not deny that the
Minns Law Office did not maintain comtemporaneous timesheets.
This is the primary reason that respondent rejected Minns’ belated
efforts to reach an agreement on fees and expenses. Respondent
was able to reach agreement on this subject with Irvine and Sticht
because they had maintained the necessary records and had started
presenting them to respondent many months before we ordered all
petitioners in the Dixon V remand proceeding to file their fee and
expense requests with the Court. It is our understanding that the
Minns Law Office created the entries to support the Minns request
by using the Porter & Hedges entries as a starting point.
We are left with the definite impression that the use of this
method by the Minns Law Office has resulted in the claim of a
total number of hours that approaches the number of hours that
respondent agreed amounted to a reasonable expenditure of time by
Porter & Hedges, which by informal agreement with all counsel,
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took the leading role on behalf of petitioners in the Dixon V
remand proceeding.20
After having addressed respondent’s specific objections to
the reasonable relationship of various tasks undertaken by the
Minns Law Office to the Dixon V remand proceeding, we are left
with a lack of confidence in the accuracy of the figures for the
remaining hours. In Dixon IV we imposed one-third across-the-
board reductions to petitioners’ fee requests because of
inadequate substantiation by their counsel.
D. Duplicative and Excessive Efforts
We now address respondent’s objections that the number of
hours of services petitioners request is excessive and includes
duplicative efforts. Respondent specifically points to: 83.07
hours, amounting to $25,609.50 in fees,21 related to preparing the
May 30, 2003, status report; 211.09 hours, amounting to $49,288.25
20
We have nevertheless dealt with respondent’s specific
objections to time spent on various tasks by assuming the
accuracy and correctness of the amounts of time claimed for the
purpose of removing them from the total.
21
Respondent’s objections to entries related to Minns and
his staff’s preparation of the May 30, 2003, status report are
attributable as follows:
Rate Hours Amount
Minns $350 63.71 $22,298.50
Williams 175 18.59 3,253.25
Secretary 75 0.77 57.75
Total --- 83.07 25,609.50
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in fees,22 related to preparation for hearings and depositions;
88.37 hours of other miscellaneous entries, amounting to $26,222
in fees;23 and $4,135.96 in travel expenses related to the
hearings. However, because we find that Minns’ efforts as a whole
are excessive, we decline to reduce petitioners’ award on the
basis of respondent’s individual objections to excessive time and
fees. Instead, we will apply an across-the-board reduction of
one-third to petitioners’ remaining award.
1. Excessive Fees and Expenses
We agree with respondent’s assertions that many of the
entries in petitioners’ fee request are excessive. Minns has
claimed excessive hours and expenses for preparing the May 30,
2003, status report, preparing for hearings, travel, and in
general. In comparison to the other firms, Minns and his staff
22
Respondent’s objections to entries related to Minns and
his staff’s preparation for hearings and depositions are
attributable as follows:
Rate Hours Amount
Minns $350 71.20 $24,920.00
Williams 175 138.39 24,218.25
Paralegal 100 1.50 150.00
Total --- 211.09 49,288.25
23
Respondent’s objections that other miscellaneous entries
are excessive are attributable as follows:
Rate Hours Amount
Minns $350 61.47 $21,514.50
Williams 175 26.90 4,707.50
Total --- 88.37 26,222.00
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spent approximately twice the time preparing the status report
they filed.24
Moreover, the Minns Law Office’s participation in the hearing
sessions and depositions was minimal. Minns attended only the
first day of both the August 18-19, 2003, Houston status
conference and the September 20-22, 2004, hearing session.
Additionally, although Williams attended the status conferences
and the hearing sessions, she did not actively participate in the
proceedings. However, despite our agreement with respondent that
24
Minns and his associates claim to have spent 79.5 hours
drafting the status report on behalf of the Hongsermeiers. The
report Minns filed contained approximately three pages of single-
spaced text.
Binder and Irvine spent approximately 67.35 hours preparing
the status report filed on behalf of the Dixons and the
Dufresnes. The body of the status report prepared by Porter &
Hedges’ attorneys contained approximately 10 pages of double-
spaced text.
Sticht’s time sheets indicate that he and his associates
spent approximately 30.2 hours preparing the status report filed
on behalf of certain non-test-case petitioners. Sticht’s report
contained approximately three pages of double-spaced text and was
submitted with several attached exhibits. Approximately three
pages of the attached exhibits were Sticht’s own work, prepared
for the status report.
Izen’s timesheets indicate that he and his associates spent
approximately 31.58 hours between preparing the status report
Izen filed on behalf of the Youngs and the Owenses. The report
Izen filed contained approximately five pages of double-spaced
text.
Jones’ timesheets indicate that he and his associates spent
8.96 hours preparing the status report and the report contained
approximately three pages of double-spaced text.
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these hours and expenses are excessive, we make no reductions to
petitioners’ award on the separate bases of respondent’s
objections.
2. Reduction for Duplicative and Excessive Efforts
We do not find that this inflation of hours is limited to the
entries respondent objects to as excessive. The hours and
expenses in Minns’ timesheets are generally excessive and are
duplicative of the services provided by Binder. We will therefore
apply a general reduction of one-third to the fees for the time
remaining after we addressed respondent’s specific objections.
Because the attorneys at Porter & Hedges performed the bulk
of the work during the remand period, we find that it would be
unreasonable and a duplication of effort for the other firms
participating in the remand proceeding to bill as many hours.
As note 15 supra shows, Minns and Izen both claimed more than
2,000 hours, on the same order of magnitude as the time claimed by
the Porter & Hedges attorneys, whereas Sticht and Jones claimed
more than 1,000 fewer hours than the time claimed by Minns and
Izen.
We find and hold that it would be unreasonable and an
exercise of poor billing judgment for Minns to bill almost as many
hours as the Porter & Hedges attorneys. It is in the light of
this observation, coupled with the lack of contemporaneous
documentation for the Minns fee and expense request, that we
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reduce by one-third Minns’ overall fee award for the remaining
time claimed.
Conclusion
To calculate the award, we first reduce Minns’ and Williams’
claimed hourly rates. We then reduce the hours petitioners have
requested for Minns, Williams, the paralegal, and the secretary by
our downward adjustments for fees not sufficiently related to the
Dixon V remand proceeding which would leave petitioners a fee
award of $484,038.75. Then, we reduce the remainder by one-third
(33-1/3 percent) of the remaining fee amount, amounting to
$161,346.25, to reflect “overlawyering” and lack of
contemporaneous documentation.
After completing these calculations, we find that petitioners
are entitled to an award of $322,692.50 in fees and $15,289.55 in
expenses.
Giving effect to our concluding determinations in Dixon IX
and Gridley II, we shall invoke our inherent power to require
respondent to pay to petitioners additional amounts equal to
interest at the applicable rates for underpayments under sections
6601(a) and 6621(a)(2) on $322,692.50 and $15,289.55 from
September 17, 2007, when petitioners filed their motion to amend
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their original request for attorney’s fees relating to the Dixon V
remand proceeding.25
We will address the manner in which the awards are to be
administered in a separate order or orders implementing this
opinion.
To give effect to the foregoing,
An appropriate order or orders
will be issued.
25
We provide for accrual of amounts equal to interest from
the later date petitioners amended their original request for
attorney’s fees because their original request contained numerous
errors that remained uncorrected until they filed their amended
request.