T.C. Memo. 2012-158
UNITED STATES TAX COURT
IRONBRIDGE CORP. AND SUBSIDIARIES f.k.a. PITT-DES MOINES, INC.,
Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
IRONBRIDGE CORP. AND SUBSIDIARY, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket Nos. 24156-07, 27523-07. Filed June 5, 2012.
Jasper G. Taylor III, Richard L. Hunn, and Susan V. Sample, for petitioners.
Deborah H. Delgado and Travis T. Vance III, for respondent.
MEMORANDUM OPINION
GOEKE, Judge: This matter is before the Court on petitioners’ motion to
dismiss these cases and to enter decisions against petitioners; respondent objects to
petitioners’ motion. We will grant petitioners’ motion and enter decisions.
-2-
Background
Respondent issued a notice of deficiency to Ironbridge Corp. (formerly Pitt-
Des Moines, Inc.) & Subs. (Ironbridge Corp.) on July 24, 2007, which determined
deficiencies and section 66621 accuracy-related penalties for 2001 and 2002.
Respondent also issued a notice of deficiency to Ironbridge Corp. on August 31,
2007, which determined deficiencies and section 6662 accuracy-related penalties for
2003 and 2004. Petitioners timely filed petitions contesting the deficiencies and
penalties, and the cases were consolidated for trial. For each of the taxable years at
issue, petitioners filed a consolidated Federal income tax return which reported
Ironbridge Corp. as the common parent of the affiliated group of corporations.
Ironbridge Corp. is a Delaware corporation, and at the time the petitions were filed
in these cases, its principal office and mailing address was in New York.
The deficiencies and penalties result from respondent’s determination that
petitioners entered into several complicated foreign currency option transactions
with a foreign tax shelter (devised by the accounting firm KPMG) which lacked
economic substance. Similar transactions devised by KPMG became the basis for a
1
All section references are to the Internal Revenue Code in effect for the
years at issue, and all Rule references are to the Internal Revenue Code of Practice
and Procedure.
-3-
Federal criminal investigation by the U.S. Attorney’s Office for the Southern
District of New York. That investigation ultimately resulted in indictments and
prosecution in the U.S. District Court for the Southern District of New York of
several people involved in the transactions. See United States v. Stein, docket No.
1:05-cr-00888-LAK (S.D.N.Y. filed Aug. 24, 2005).
Although he has not been indicted or tried, the principal of petitioners, James
Haber, believes he was one of the persons involved in the criminal investigation.
Mr. Haber stated during deposition testimony that he believes he became a potential
“target” of the criminal investigation around “2002 or 2003”. While Stein
concluded in June 2009, the related criminal investigation is ongoing. On
September 11, 2009, the U.S. Attorney’s Office for the Southern District of New
York sent a letter to counsel for Mr. Haber which confirmed that there is an “on-
going investigation by the U.S. Attorney’s Office for the Southern District of New
York * * * of various individuals and entities involved in tax shelter activities” but
stated that “the Office and the Tax Division, Department of Justice, have no present
intention of seeking criminal charges against Mr. Haber or his companies with
respect to the tax benefits claimed by client taxpayers from the shelter transactions
in which Haber and his companies were involved.”
-4-
The criminal proceedings delayed the trial of these cases several times.2 On
May 13, 2011, petitioners filed a motion for stay of proceedings, stating that
“allowing this case to proceed to trial would likely put the petitioners in the difficult
position of being unable to put on their case, as Mr. Haber and other personnel of
his companies would likely invoke the Fifth Amendment with respect to
interrogatories, depositions, and trial testimony.” The “other personnel” who would
also likely invoke the Fifth Amendment were not identified. Respondent objected to
petitioners’ motion for stay of proceedings, and the motion was denied on August
16, 2011.
On March 27, 2012, petitioners filed a motion to dismiss the consolidated
cases and enter decisions against them. Petitioners stated that they filed the motion
as a result of their inability to present the testimony of Mr. Haber and other
individuals who planned to invoke their Fifth Amendment rights. Petitioners claim
that the lack of such testimony “would prevent the petitioners
from being able to put on their case at trial” because “Testimony from * * * [these]
witnesses is critical to petitioners’ ability to meet their burden of proof in these
2
Pursuant to joint requests by the parties, the trial was continued on
December 9, 2008, and June 10 and December 2, 2009, as a result of the criminal
proceedings. In addition to these 18 months, the parties also spent substantial time
in trial preparation.
-5-
cases”. Respondent objected to petitioners’ motion to dismiss on the grounds that
“The principles of judicial economy require a final determination of these issues in
this proceeding, which only a decision on the merits or an agreed stipulated decision
can produce.” Respondent is concerned that petitioners’ motion “is merely an
attempt to unnecessarily prolong and delay this proceeding.”
Discussion
I. Denial of Petitioners’ Motion for Stay of Proceedings
Petitioners filed their motion to dismiss and enter decisions as a result of our
refusal to grant their motion for stay of proceedings. We therefore begin with an
explanation of why we have determined a stay of proceedings is no longer
appropriate.
The Constitution does not ordinarily require a stay of civil proceedings
pending the outcome of a related criminal case. Keating v. Office of Thrift
Supervision, 45 F.3d 322, 324 (9th Cir. 1995); SEC v. Dresser Indus., Inc., 628
F.2d 1368, 1375 (D.C. Cir. 1980). A court nevertheless has discretion to stay civil
proceedings “‘when the interests of justice seem to require such action.’” Keating,
45 F.3d at 324 (quoting United States v. Kordel, 397 U.S. 1, 12 n.27 (1970)). Upon
a showing of “special circumstances”, we will stay the case so as to prevent
“substantial and irreparable prejudice.” SEC v. First Fin. Grp. of Tex., Inc., 659
-6-
F.2d 660, 668 (5th Cir. 1981). However a stay of a civil case to permit conclusion
of a related criminal prosecution has been characterized as “‘an extraordinary
remedy’”. Louis Vuitton Malletier, S.A. v. Ly USA, Inc., 676 F.3d 83, 98 (2d Cir.
2012) (quoting Trs. of Plumbers & Pipefitters Nat’l Pension Fund v. Transworld
Mech., Inc., 886 F. Supp. 1134, 1139 (S.D.N.Y. 1995)).
Various courts have formulated multifactor tests to apply in deciding whether,
in the light of these hazards to the defendants in the civil proceedings against them,
to grant a stay of those proceedings. Louis Vuitton Malletier, S.A., 676 F.3d at 99.
The District Courts of the Second Circuit have often used the following six-factor
balancing test: (1) the extent to which the issues in the criminal case overlap with
those presented in the civil case; (2) the status of the case, including whether the
defendant (here, petitioners) has been indicted; (3) the private interests of the
plaintiff (here, respondent) in proceeding expeditiously weighed against the
prejudice to plaintiff (respondent) caused by the delay; (4) the private interests of
and burden on the defendant (here, petitioners); (5) the interests of the courts; and
(6) the public interest. Id. at 99-100. After considering each factor, as explained
herein, we found the cumulative weight of the factors to favor denying the stay. We
therefore denied petitioners’ motion for stay of proceedings.
-7-
A. Overlap of Issues
Petitioners allegedly entered into transactions with tax shelters devised by
KPMG. Similar transactions devised by KPMG became the basis for the indictment
and prosecution of several people involved in the transactions. We believe both
these cases and the related criminal investigation revolve around the purpose and
operation of similar complicated financial transactions, and thus the cases overlap
considerably. This factor weighs in favor of a stay.
B. Status of the Case
A stay of a civil case is most appropriate where a party to the civil case has
already been indicted, and “stays will generally not be granted before an indictment
is issued.” Trs. of Plumbers & Pipefitters Nat’l Pension Fund, 886
F. Supp. at 1139. In these cases Mr. Haber has not been indicted. In addition,
while the Government has not granted Mr. Haber immunity from criminal
prosecution, the Government has indicated it has no plans to prosecute him or his
companies. Although Mr. Haber claims to have been a target of a criminal
investigation for nearly 10 years, no action has been taken. This factor weighs
against a stay.
-8-
C. Interests of and Prejudice to Respondent
In addition to the potential loss of evidence and testimony as time passes,
respondent faces increasing difficulty in collecting from petitioners (or others as
transferees). This factor weighs against a stay.
D. Interests of and Burden on Petitioners
Even if Mr. Haber invoked the Fifth Amendment, petitioners’ actions can be
proven through the testimony of employees3 and through contemporaneous
corporate records. See, e.g., Bellis v. United States, 417 U.S. 85, 88 (1974)
(individuals cannot rely on the Fifth Amendment privilege to avoid producing the
records of a collective entity). In economic substance cases like this one, the
mechanics of the deal will necessarily be reflected in transactional documentation.
This factor weighs against a stay.
E. Interest of the Courts
This factor may favor a stay in a case when it is possible to use the criminal
judgment as a basis for collateral estoppel in a related civil case. A stay may also
ensure that civil discovery (when it resumes) will proceed unobstructed by concerns
of self-incrimination. These interests are stronger when the cases share a large
3
Petitioners’ motion for stay of proceedings did not identify employees who
might invoke the Fifth Amendment in refusing to testify.
-9-
number of common issues. See Dresser Indus., Inc., 628 F.2d at 1375-1376 (“[T]he
strongest case for deferring civil proceedings * * * is where a party under indictment
for a serious offense is required to defend a civil or administrative action involving
the same matter.”). However, petitioners are not at risk of criminal prosecution
(thereby reducing the possible future use of collateral estoppel to zero), and it does
not appear likely that Mr. Haber is in criminal jeopardy. Given that it is uncertain
whether Mr. Haber will even be indicted, granting the motion could result in the
imposition of a lengthy and indeterminable stay for no reason. This factor weighs
against a stay.
F. Public Interest
The public’s interest involves the resolution of disputes with minimal delay,
but only to the extent that it does not jeopardize the integrity of a criminal
proceeding. Alcala v. Tex. Webb Cnty., 625 F. Supp. 2d 391, 407 (S.D. Tex.
2009). The integrity of a criminal proceeding will generally be at stake when the
noncriminal proceeding may expand rights of criminal discovery beyond the limits
of rule 16(b) of the Federal Rules of Criminal Procedure, undermine the party’s
Fifth Amendment privilege against self-incrimination, expose the basis of the
defense to the prosecution in advance of a criminal trial, or otherwise prejudice the
criminal case. Dresser Indus., Inc., 628 F.2d at 1376. The fact that Mr. Haber has
- 10 -
not been indicted during a lengthy investigative period makes it much less likely that
the integrity of a criminal proceeding will be jeopardized. In addition, issuing a stay
in such a case could result in the imposition of a lengthy and indeterminable delay
before resolution of these cases. This factor weighs against a stay.
II. Motion To Dismiss
Under section 7459(d), if a petition has been filed in the Tax Court and we
dismiss the case for any reason other than lack of jurisdiction, we must enter an
order finding the deficiency in tax to be the amount determined by the
Commissioner in his notice of deficiency unless the Commissioner reduces the
amount of his claim. Estate of Ming v. Commissioner, 62 T.C. 519 (1974). Thus, if
we were to grant petitioners’ motion, we would be required to enter decisions
finding deficiencies in petitioners’ taxes for the years involved in the amounts
respondent determined in the notices of deficiency. See id. Petitioners have
acknowledged several times in their motion to dismiss that if their motion is granted,
decisions will be entered against them in these cases.
The acceptance or rejection of a proffered concession is a matter within the
discretion of this Court, and we should exercise our discretion in accordance with
the “interest of justice”. See Jones v. Commissioner, 79 T.C. 668, 673 (1982);
McGowan v. Commissioner, 67 T.C. 599, 607 (1976). Respondent has not
- 11 -
suggested how the interests of justice would compel us to deny petitioners’ motion,4
and we can conceive of no injustice in granting petitioners’ motion. We therefore
will grant petitioners’ motion to dismiss.
To reflect the foregoing,
An appropriate order will be
issued, and decisions will be entered
for respondent.
4
Respondent has stated that petitioners’ motion is merely an attempt to delay
the proceedings and that judicial economy requires either a decision on the merits or
else execution of “a stipulated decision effectuating a final, full, and complete
concession of this case by petitioners.” However, respondent has not specified how
granting petitioners’ motion would delay the proceedings. We note that “A decision
rendered upon a default or in consequence of a dismissal, other than a dismissal for
lack of jurisdiction, shall operate as an adjudication on the merits.” Rule 123(d);
see also Settles v. Commissioner, 138 T.C. ___, ___ (slip op. at 4) (May 8, 2012);
Estate of Ming v. Commissioner, 62 T.C. 519, 522-523 (1974).