[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________ FILED
U.S. COURT OF APPEALS
Nos. 01-17249, 01-17251, 01-17253, ELEVENTH CIRCUIT
November 2, 2005
01-17255, 01-17256, 01-17257
THOMAS K. KAHN
________________________ CLERK
Tax Court Nos. 1984-92, 22884-93, 21616-91
16421-90, 23743-92, 20211-91
CLAUDE M. BALLARD,
MARY B. BALLARD,
Petitioners-Appellants,
versus
COMMISSIONER OF INTERNAL REVENUE,
Respondents-Appellees.
________________________
Appeals from a Decision of
the United States Tax Court
_________________________
(November 2, 2005)
ON REMAND FROM THE SUPREME COURT
OF THE UNITED STATES
Before HULL, FAY and GIBSON*, Circuit Judges.
_____________
*Honorable John R. Gibson, United States Circuit Judge for the Eighth Circuit, sitting by
designation.
PER CURIAM:
In this tax fraud case the Tax Court ruled that taxpayers fraudulently failed to
declare and pay income tax on approximately $3,200,000. We affirmed. Ballard v.
Comm’r of Internal Revenue, 321 F.3d 1037 (11th Cir.2003). The Supreme Court
granted Certiorari and reversed. Ballard v. Comm’r of Internal Revenue, 125 S.Ct.
1270 (2005). Following the Supreme Court’s guidance, we now remand the case to the
Tax Court with the following instructions: (1) The “collaborative report and opinion”
of the Tax Court is ordered stricken; (2) The original report of the special trial judge
is ordered reinstated; (3) The Chief Judge of the Tax Court is instructed to assign this
matter to a regular Tax Court Judge who had no involvement in the preparation of the
aforementioned “collaborative report;” (4) The Tax Court shall proceed to review this
matter in accordance with the dictates of the Supreme Court, and with the Tax Court’s
newly revised Rules 182 and 183, giving “due regard” to the credibility determinations
of the special trial judge and presuming correct fact findings of the trial judge. This
is a limited remand, and should either party seek appellate review following this new
ruling by the Tax Court, such appeal should be assigned to this panel.1
1
See Pettway v. Am. Cast Iron Pipe Co., 681 F.2d 1259, 1269 (11th Cir.2001)(panel
retains jurisdiction to hear subsequent appeals of case following remand); see also Geisser v.
United States, 627 F.2d 745, 748-9 (5th Cir.1980)(in order for same panel to retain jurisdiction,
panel must be referred to explicitly)(binding precedent under Bonner v. City of Prichard, 661
F.2d 1206, 1209 (11th Cir.1981)(en banc)).
2
I. Factual Background
The allegations of the Internal Revenue Service (IRS) set forth a complicated
scheme of kickbacks to influence decisions of the Real Estate Department of
Prudential Life Insurance Company of America (Prudential). According to these
allegations, the principal players were Burton W. Kanter (Kanter), a well known
Chicago tax attorney, Claude M. Ballard (Ballard), and Robert W. Lisle (Lisle), two
senior executives with Prudential. The details of the alleged schemes are set forth in
our earlier opinion and need not be repeated here. The gravamen of the allegations is
that Kanter “sold” influence with Ballard and Lisle to gain financing for various
projects through Prudential, charged fees for these “services,” and split these monies
with Ballard and Lisle through a group of legal entities. These allegations focus
primarily on five arrangements made between Kanter and J.D. Weaver, Bruce Frey,
William Schaffel, Kenneth Schnitzer, and John Eulich. It is alleged that these five
individuals paid “kickbacks” to Kanter who in turn funneled a portion to Ballard and
Lisle through a complex web of corporations, partnerships, and trusts.
II. Procedural History
A. Public History
As set forth in our earlier opinion, the record brought to our court showed the
following:
3
Petitioners-Appellants received Notices of Deficiency from the
IRS pertaining to years 1975 through 1982, 1984, and 1987 through
1989, alleging that they owed additional taxes. As to each deficiency
asserted by the IRS, the Ballards filed petitions for redetermination in
the Tax Court. Pursuant to I.R.C. § 7443A and Rules 180, 181 and 183,
the Chief Judge of the Tax Court assigned the consolidated case to
Special Trial Judge D. Irwin Couvillion for trial.
At the conclusion of the five-week trial during the summer of
1994, Special Trial Judge Couvillion, in accordance with Rule 183(b),
prepared and submitted a written report containing his findings of facts
and opinions to the Chief Judge for subsequent review by a Tax Court
Judge. In accordance with Rule 183, none of the litigants received a
copy of Special Trial Judge Couvillion’s report at that time. Thereafter,
pursuant to Rule 183(b), the Chief Judge assigned the case to Tax Court
Judge H.A. Dawson, Jr. for his review and final disposition. On
December 15, 1999, Judge Dawson issued the opinion of the Tax Court
in which the Tax Court both approved of and adopted Special Trial
Judge Couvillion’s report (T.C. Memo 1999-407; see Investment
Research Assoc., Inc. v. Commissioner, 78 T.C.M. (CCH) 951 (1999)),
a copy of which was provided to the parties. On July 24, 2001, Judge
Dawson entered the final order of the Tax Court against Petitioners-
Appellants, assessing tax deficiencies of $1,318,648. Of that amount,
$422,812 is penalties against Ballard pursuant to I.R.C. § 6653(b).
On April 20, 2000, prior to the Tax Court’s final order of
assessment, the Ballards, joined by the other petitioners, filed a motion
requesting access to “all reports, draft opinions or similar documents,
prepared and delivered to the [Tax] Court pursuant to Rule 183(b),” or,
in the alternative, that the Tax Court either certify the issue for
interlocutory appeal pursuant to Rule 193 or make the initial findings
part of the record for subsequent appeal to the circuit court. On April
26, 2000, Judge Dawson issued an order denying the motion. In the
order, Judge Dawson noted that “[he] gave due regard to the fact that
Special Trial Judge Couvillion evaluated the credibility of witnesses . .
. and treated the findings of fact recommended by the Special Trial
Judge as being presumptively correct.”2 On May 26, 2000, the Ballards,
2
Rule 183(c) provides in relevant part, “[d]ue regard shall be given to the circumstance that the
Special Trial Judge had the opportunity to evaluate the credibility of witnesses, and the findings
4
along with the other petitioners, filed a second motion with the Tax
Court. The second motion requested that Special Trial Judge
Couvillion’s original report or other documentation be placed under seal
and made part of the record for subsequent appellate review. That
motion was denied on May 30, 2000.
On August 22, 2000, the Ballards, once again joined by the other
petitioners, filed a motion requesting that the Tax Court reconsider its
denial of access to Special Trial Judge Couvillion’s original report or,
alternatively, that the Tax Court grant the petitioners a new trial. In
support of this motion, an affidavit from Randall G. Dick (“Dick”),
attorney for IRA and for Kanter, was filed. In the affidavit, Dick
indicated that two unidentified Tax Court Judges approached him and
stated that in the original report submitted to the Chief Judge in
accordance with Rule 183(b), Special Trial Judge Couvillion concluded
that payments made by “the Five” were not taxable to the individual
petitioners and that the fraud penalty was not applicable. Furthermore,
Dick indicated that the two unidentified Tax Court Judges expressed
that “substantial sections of the opinion were not written by Judge
Couvillion, and that those sections containing findings related to the
credibility of witnesses and findings related to fraud were wholly
contrary to the findings made by Judge Couvillion in his report.”
According to Dick, the two Tax Court Judges stated that the changes to
Special Trial Judge Couvillion’s findings relating to credibility and
fraud were made by Judge Dawson. Finally, Dick indicated that he
confirmed what he was told by the two unidentified Tax Court Judges
with yet another unidentified Tax Court Judge. Apparently, the third
unidentified Tax Court Judge confirmed that Special Trial Judge
Couvillion’s opinion had been “changed.” On August 30, 2000, the Tax
Court issued an order signed by Special Trial Judge Couvillion, Judge
Dawson and the Chief Judge of the Tax Court denying the motion and
confirming that, contrary to the contents of the affidavit, the underlying
report adopted by the Tax Court is, in fact, Special Trial Judge
Couvillion’s report.
Subsequently, the Ballards petitioned this court for a writ of
mandamus seeking an order directing the Tax Court to provide the
of fact recommended by the Special Trial Judge shall be presumed to be correct.”
5
Ballards with a copy of the original Special Trial Judge Couvillion
report or, alternatively, seeking an order requiring that the Tax Court
provide any changes made by Judge Dawson to the original Special
Trial Judge Couvillion report. The petition was denied on October 23,
2000.
Ballard, 321 F.3d at 1040-41 (11th Cir.2003).
B. Undisclosed History
We now know, based on new documents filed with this Court, that the
following events occurred in the Tax Court:
1. Judge Couvillion’s original report initially recommended that Ballard was not
liable for the deficiencies in tax asserted against him. Specifically, Judge
Couvillion concluded that “there were no ‘kickback schemes,’ and none of the
alleged ‘kickback schemes’ payments by ‘The Five’ represented unreported
income of Kanter, Ballard, and Lisle. There was, therefore, no underpayment
of tax.” In fact, Judge Couvillion’s original report did not consider the
government’s allegation of fraud “as even rising to the level of suspicion of
fraud.”
2. After Judge Dawson was assigned to the case, he reviewed Judge Couvillion’s
original report and advised the Chief Judge that he disagreed with it.
Approximately one week later, on or about August 27, 1998, then Chief Judge
6
Cohen advised Judge Dawson that she also disagreed with Judge Couvillion’s
original report.
3. A conference was scheduled between Chief Judge Cohen, Judge Dawson, and
Judge Couvillion. It appears that shortly before this conference was to take
place, Judge Couvillion was aware that both Chief Judge Cohen and Judge
Dawson disagreed with his report.
4. On September 1, 1998, Judge Couvillion withdrew his original report.
5. Chief Judge Cohen assigned Judge Dawson and Judge Couvillion to write a
“collaborative report.” This “collaborative report” stood in stark contrast to
Judge Couvillion’s original report. In fact, the collaborative report now
concluded that Ballard should be liable for the deficiencies in tax asserted
against him.
6. On October 25, 1999, Judge Dawson adopted the “new collaborative report.”
7. On November 4, 1999, Chief Judge Cohen adopted the “new collaborative
report” with some minor modifications.
8. On December 15, 1999, Chief Judge Cohen formally assigned the case to
Judge Dawson, and the “new collaborative report” was filed as the decision of
the Tax Court.
III. Discussion
7
The Supreme Court has now made clear that the procedures outlined above run
contrary to the rules of the Tax Court and completely disregard the deference due to
the credibility determinations and fact findings of Special Trial Judge Couvillion.
Although the Tax Court itself renders the final decision, Tax Court Rule 1833 governs
the proceedings in which a special trial judge hears a case. Specifically, Rule 183(b)
requires that the special trial judge “submit a report, including findings of fact and
opinion, to the Chief Judge, and the Chief Judge will assign the case to a judge or
Division of the Court.” Rule 183(c) requires the assigned Tax Court Judge to give
“due regard” to the report because the special trial judge “had the opportunity to
evaluate the credibility of the witnesses.” Fact findings in the report “shall be
presumed to be correct.” Tax Ct. Rule 183(c). The Tax Court’s final decision may
either adopt, modify, or “reject in whole or in part” the special trial judge’s report. Id.
As discussed by the Supreme Court, special trial judge reports were once made
public and were included in the record on appeal. Disclosure of the original reports
as submitted to the Chief Judge marked the practice of the Tax Court prior to a 1983
revision to the Tax Court Rules.4 This revision deleted the requirement found in Tax
3
The relevant provisions of Tax Court Rule 183 were previously found in Tax Court Rule
182, prior to the 1983 amendment. Moreover, Tax Court Rule 183 was recently amended on
September 20, 2005. Unless otherwise stated, we cite the language of the rule as it was at the
time of the Supreme Court’s decision.
4
The effective date of this rule revision was January 16, 1984.
8
Court Rule 182 that, upon submission of the report, “a copy... shall forthwith be
served on each party.” The revision also deleted a prior provision giving parties an
opportunity to make exceptions to the report. As a result, the Tax Court significantly
altered its practice regarding special trial judge recommendations.
Following the 1983 revision, the Tax Court began to withhold special trial
judge reports from the public and to exclude these reports from the record on appeal.
Tax Court Judges also refrained from stating whether they had “modified” or
“rejected” reports in their decisions. Instead, decisions invariably stated that they
agreed with and adopted the special trial judge’s recommendations. See Ballard, 125
S.Ct. at 1275.5 Thus, the Tax Court discontinued its practice of disclosing whether
and how its final decision deviated from the special trial judge’s original report. The
Supreme Court has now concluded that this practice did not comply with Tax Court
rules, and that “[t]he Tax Court, like all other decision making tribunals, is obligated
to follow its own Rules.” Id. at 1282. Furthermore, the Supreme Court stated that the
Tax Court’s practice of not disclosing the “original report, and of obscuring the Tax
Court judge’s mode of reviewing that report, impedes fully informed appellate review
for the Tax Court’s decision.” Id. at 1283.
5
This is apparently a stock statement used in opinions issued under post-revision Tax
Court practices. See Ballard, 125 S.Ct. at 1275.
9
The Tax Court recently amended Rule 183 to reflect the dictates of the
Supreme Court’s opinion. The current rule provides “substantially the same
procedures as those set forth in former Rule 182.” Tax Ct. Rule 183 note on Ballard,
125 S.Ct. 1270(2005)(as amended Sept. 20, 2005). Significantly, these procedures
include service of the special trial judge report on the parties, an opportunity for
objection to the recommendations, and a requirement that the final order or report
reflect the presiding judge’s action on the report. See id. Although these specific
requirements were not in effect at the time of this lawsuit, they reflect the overall
principles outlined by the Supreme Court, giving force to the phrase “due regard” by
requiring more of the appointed judge than the bare assertion that he gave “due
regard” to the special trial judge’s findings.
Credibility determinations are entitled to great deference, and must not be
disturbed unless manifestly unreasonable. See Anderson v. City of Bessemer City,
N.C., 470 U.S. 564, 575, 105 S.Ct. 1504, 1512 (1985)(“When findings are based on
determinations regarding the credibility of witnesses, [Fed. R. Civ. P.]52(a) demands
even greater deference to the trial court’s findings; for only the trial judge can be
aware of the variations in demeanor and tone of voice that bear so heavily on the
listener’s understanding of and belief in what is said”)(citations omitted). As such,
a reviewing court must be in the position to scrutinize whether or not such findings
10
have been given “due regard.” Absent Judge Couvillion’s original report, we had no
basis for comparison and could only defer to Judge Dawson’s statement that he
adopted the report. We now know that Judge Couvillion’s original report stands in
direct opposition to Judge Dawson’s ultimate decision, and that collaboration
amongst Chief Judge Cohen, Judge Dawson, and Judge Couvillion resulted in
considerable and fundamental modifications to the original report. Unexplained
modification of Judge Couvillion’s credibility determinations is unacceptable. If a
reviewing judge departs from a special trial judge’s findings of fact, such departure
must be reflected and explained in the final order, and must be evident to the
reviewing court by making the original recommendations available in the record on
appeal. Any such departures must be fully explained and supported by the record.
The situation is analogous to the district court’s treatment of a magistrate
judge’s findings of fact. A magistrate’s initial findings are made available to the
reviewing court and to the parties. See 28 U.S.C. § 636(b)(1)(c).6 A district court
must defer to a magistrate’s findings unless the magistrate’s understanding of facts
is entirely unreasonable. See U.S. v. Ramirez-Chilel, 289 F.3d 744, 749 (11th
6
The same holds true for special masters and bankruptcy judges. See Fed. R. Civ. P.
53(f)(special masters); Fed R. Bkrtcy. Proc. 9033(a)(bankruptcy judges). Furthermore, Fed. Rule
App. Proc. 10(a) requires that the record on appeal include original papers filed in district court.
The Administrative Procedure Act specifies that the record on appeal must contain, “[a]ll
decisions, including initial, recommended, and tentative decisions.” 5 U.S.C. §557(c).
11
Cir.2002). Moreover, a district court may not reject a magistrate’s credibility
determinations without rehearing the disputed testimony. See United States v.
Cofield, 272 F.3d 1303, 1306. Only in “rare cases,” where “an articulable basis for
rejecting the magistrate’s original resolution of credibility” is found in the transcript,
and where that basis is “articulated by the district judge,” may an exception be made
to the general rule requiring rehearing. Id. (citations omitted)(internal quotations
omitted). As such, a reviewing court must be able to determine whether, as a matter
of law, the district court gave the appropriate level of deference to the fact finder.
This cannot be determined if original fact findings and credibility determinations are
withheld from the record on appeal. The need for transparency under the present
circumstances is no less than that required between magistrate and district court
judge. Judge Couvillion’s original report was not included in the record on appeal.
We now know, however, that the Tax Court departed from Judge Couvillion’s
original report and articulated no basis for this departure. The procedures employed
by the Tax Court, purporting to adopt Judge Couvillion’s opinion when in reality
changing it, merely emphasize the need for such transparency, and run contrary to
Rule 183 both in principle and in application.
The defendant taxpayers objected to the concealment of Special Trail Judge
Couvillion’s original report, and to its exclusion from the record on appeal. In
12
compliance with the Supreme Court, we conclude that the original report of Special
Tax Judge Couvillion cannot be excluded from the record on appeal because such
concealment “impedes fully informed appellate review of the Tax Court’s decision”
by “obscuring the Tax Court Judge’s mode of reviewing that report.” Ballard, 125
S.Ct. at 1283. It is absolutely essential that Judge Couvillion’s original report be
reinstated and given the impact and deference required by law because all primary
witnesses in this case are now deceased, thus foreclosing the opportunity for a retrial.
IV. Conclusion
Based on the recently disclosed history of this case and in light of the Supreme
Court’s decision, it has become evident that the procedures employed by the Tax
Court do not comport with Tax Court Rule 183 as it stood at the time of our original
opinion, nor do they with Rule 183 as it stands now. Altering the original credibility
determinations and findings of Judge Couvillion without explanation was not only
contrary to the requirements of the law but also misleading. It is obvious now that the
withholding of Special Trial Judge Couvillion’s original report did, in fact, impede
the process of appellate review. We therefore vacate the Tax Court’s decision and
remand with instructions to: (1) Strike the “collaborative report” that formed the basis
of the Tax Court’s ultimate decision; (2) Reinstate Judge Couvillion’s original report;
(3) Refer this case to a regular Tax Court Judge who had no involvement in the
13
preparation of the aforementioned “collaborative report” and who shall give “due
regard” to the credibility determinations of Judge Couvillion, presuming that his fact
findings are correct unless manifestly unreasonable;7 and (4) Adhere strictly hereafter
to the amended Tax Court Rules in finalizing Tax Court opinions.
VACATED and REMANDED to the Tax Court for proceedings consistent
with this opinion. All pending motions are denied as moot.
7
Former Chief Judge Cohen, Judge Dawson, and Judge Couvillion are not to be involved
in this new review.
14