Stearman v. Commissioner

United States Court of Appeals
Fifth Circuit
F I L E D
Revised January 19, 2006 January 13, 2006

In the Charles R. Fulbruge III
Clerk
United States Court of Appeals
for the Fifth Circuit
_______________

m 05-60521
Summary Calendar
_______________

WILLIAM C. STEARMAN, III,

Plaintiff-Appellant,

VERSUS

COMMISSIONER OF INTERNAL REVENUE,

Defendant-Appellee.

_________________________

Appeal from a Decision
of the United States Tax Court

_________________________

Before SMITH, GARZA and PRADO, U.S.C. § 6673 for advancing frivolous posi-
Circuit Judges. tions and maintaining the proceedings primari-
ly for delay.1 Stearman also requests damag
PER CURIAM:

William Stearman, III, pro se, appeals the 1
On the certificate of service in his appellate
judgment of the United States Tax Court dis- brief, Stearman styles himself as a “moron pro se
missing his two consolidated cases for failure from hickville Texas” and urges this court to de-
to state a claim and failure to prosecute and cide whether he “knows more about the tax sys-
sanctioning him $12,500 per case under 26 (continued...)
es under § 6673 against the Tax Court judge the time and resources of the Tax Court. Id.
and opposing counsel in an amount “at least
equal to the amount of the ‘judgment.’” We Stearman, like the plaintiff in Tello, failed
affirm and grant the Commissioner’s motion to to appear at the call of the consolidated cases
impose sanctions for maintaining a frivolous despite being sent a notice setting the case for
appeal. trial and stating that “[HIS] FAILURE TO
APPEAR MAY RESULT IN DISMISSAL
I. OF THE CASE AND ENTRY OF DECI-
We review de novo the dismissal for failure SION AGAINST [HIM].” Stearman did not
to state a claim, Lowrey v. Tex. A & M Univ. explain his non-appearance.
Sys., 117 F.3d 242, 246 (5th Cir. 1997), and
review for abuse of discretion the dismissals Also, like the plaintiff in Tello, Stearman
for failure to prosecute and the imposition of failed to cooperate in that he refused to com-
sanctions under § 6673, Tello v. Comm’r, 410 ply with the Tax Court’s order to file, with
F.3d 743, 744 (5th Cir.), cert. denied, 126 S. that court, his requests for admissions. The
Ct. 381 (2005). Dismissals with prejudice for notice setting the case for trial stated that
failure to prosecute are proper only where “[HIS] FAILURE TO COOPERATE MAY
(1) there is a clear record of delay or contu- ALSO RESULT IN THE DISMISSAL OF
macious conduct by the plaintiff and (2) the THE CASE AND ENTRY OF DECISION
district court has expressly determined that AGAINST [HIM].” Stearman served a re-
lesser sanctions would not prompt diligent quest for admissions on the government with-
prosecution, or the record shows that the dis- out filing it with the Tax Court. The request
trict court employed lesser sanctions that asked the government to admit that “‘Taxpay-
proved to be futile. Tello, 410 F.3d at 744. er’ means fiduciary,” that the “‘United States’
is a federal corporation,” and that the “‘UNIT-
In most cases, a plain record of delay or ED STATES OF AMERICA’ is another fed-
contumacious conduct is found if one of the eral corporation.” The Tax Court ordered
three aggravating factors is also present: Stearman to file the request with the court, as
(1) delay caused by the plaintiff; (2) actual pre- required by Tax Court Rule 90(b).
judice to the defendant; or (3) delay as a result
of intentional conduct. Id. In Tello, we found Instead of cooperating by complying with
that the Tax Court had properly dismissed the the order, Stearman filed a “status report” ask-
case because of the plaintiff’s (1) failure to ing “YOU WANT WHAT? BY WHEN? If
appear at the calendar call and recall of his you haven’t figured this out yet, the olive
case; (2) failure to cooperate with the branch has been withdrawn” and stating “Vas-
Commissioner in preparing a stipulation of quez,2 you’ve lost your mind! Go butt a
facts; (3) refusal to address the merits of the stump!!3 The “status report” also called the
case; (4) wilful ignorance of warnings to stop
making frivolous arguments; and (5) wasting
2
Judge Vasquez is the Tax Court judge presid-
ing over the case.
1
(...continued)
3
tem” than do the Commissioner’s “educated” and Earlier, after the Commissioner had filed an
“vastly experienced” attorneys. (continued...)

2
Tax Court a “kangaroo court” and stated that whatsoever,” and that the judge had not al-
taxpayer “has absolutely no intention of ‘re- lowed sufficient time to respond to the motion
turning’ or ‘refiling’ those original discovery to dismiss.5 The response stated that the Tax
documents . . . given that those documents are Court’s order to respond was “completely un-
now evidence for the pending criminal investi- lawful and mindless” and characterized the
gation of what may involve a whole stinking motion to dismiss as “utterly and facially sanc-
group of you people.”4 Stearman explained tionable crap.”6
that he would not “refile” the requests of ad-
mission with the Tax Court because the “in- It is evident that Stearman engaged in a
sane tampering with the Record epidemic that pattern of delay and contumacious conduct be-
runs amuck in the Tax Court is not Petitioner’s fore the Tax Court and that the delay was
problem.” caused by his personal and intentional conduct.
He expressly refused to file items required by
Further, in retort to the Commissioner’s the court’s rules and an explicit court order,
motion to dismiss for failure to state a claim,
Stearman filed a response, also including an
“Anticipatory Rule 60(b) Motion,” which did 5
The motion to dismiss was filed on November
not address the merits of the motion to dismiss 2, 2004. On November 18, 2004, the Tax Court
but asserted that the Tax Court judge “is in- ordered Stearman to file, by November 29, 2004,
competent and biased and has no authority, a response to the motion to dismiss and set the
motion for a hearing at the previously-scheduled
trial session set for December 6, 2004. Stearman
3
(...continued) argued that he received this order on November 22,
answer in No. 20928-03, Stearman also filed a 2004, and because of the Thanksgiving holiday he
“status report” stating that “[u]pon receipt of the had only “two days” to respond. Stearman, how-
Answer, Petitioner respectfully declines to animate ever, was served with the motion to dismiss filed on
the person, capacity or usage proposed by Respon- November 2, 2004. Therefore, he had at least
dent, and he is content to await notice of any sua three weeks to prepare a response by November
sponte activity relevant to this matter.” 29, 2004. Further, had he filed for an extension,
rather than filing a response insulting the presiding
4
The day before he filed the status report, judge, the extension could have been granted.
Stearman filed a “Probable Cause Affidavit” with
6
the Tax Court that alleged various criminal acts The response contended that the government
committed by the court, objected to Tax Court could not file a motion to dismiss for failure to
rules, requested “production” of Judge Vasquez, state a claim nine months after it filed a responsive
and submitted “interrogatories” directed to the pleading because, under Federal Rule of Civil
judge. Procedure 12(b), such a motion must be made
“before pleading if a further pleading is permitted.”
The affidavit and several other documents filed This argument lacks merit. As explained in Fed-
by Stearman in the Tax Court contained the fol- eral Rule of Civil Procedure 12(h), which deals
lowing heading: “UNITED STATES TAX specifically with waiver or preservation of certain
COURT (a federal corporation, committing crim- defenses, a defense for failure to state a claim “may
inal acts under disguise of providing professionally be made in any pleading permitted or ordered under
incompetent arbitration services, while doing [Federal Rule of Civil Procedure] 7(a), or by
business in ‘this state’ via a tax exemption certifi- motion for judgment on the pleadings, or at the trial
cate.” on the merits.”

3
although he had been warned that the sanction We also affirm the dismissal for failure to
for failure to cooperate could be dismissal. state a claim. Whatever arguments Stearman
may have on appeal on why dismissal for fail-
Stearman also failed to appear at trial al- ure to state a claim was improper are waived
though he had been warned that the sanction because he did not raise them in his invective-
for this action could also be dismissal. In his filled response to the motion to dismiss.9
response to the motion to dismiss, he refused
to address the merits of the motion, but rather We also agree with the Tax Court that
insulted the judge. His insults to the judge, Stearman “has advanced shopworn arguments
opposing counsel, and the Tax Court, and his characteristic of tax-protester rhetoric that has
general contempt and defiance of the court’s been universally rejected by this and other
authority and accusations of criminal conduct courts.” T.C. Memo 2005-39. Stearman ap-
are intentional, not mistakes or oversights. As pears to have borrowed his theories and liti-
we explained in John v. Louisiana, 828 F.2d gating strategy from the taxpayer in Tello v.
1129, 1131 (5th Cir. 1987), it is not a party’s Comm’r, 143 Fed. Appx. 568 (5th Cir.) (per
negligence, regardless of how careless or in- curiam), cert. denied, 126 S. Ct. 667 (2005).
considerate, that makes conduct contuma-
cious; instead, it is “the stubborn resistance to As with Stearman, the plaintiff in Tello did
authority” that justifies a dismissal with preju- not deny receiving the income stated in the no-
dice. tice of deficiency or the fact that he did not file
a tax return for the years at issue. Also as
Moreover, Stearman’s frivolous arguments, here, Tello alleged that the notice of deficiency
insults, failure to cooperate and other dilatory was improper because (1) the accounting
practices wasted the Tax Court’s resources. method the Commissioner employed was not
Because Stearman was pro se, he was also as suitable as Tello’s preferred accounting
personally responsible for the delay. method; (2) the Commissioner is not permitted
to provide accounting services in the State of
Given the obstinate and harassing nature of Texas; (3) the Commissioner is not permitted
Stearman’s conduct, including his wilful failure to practice law in the State of Texas; and (4)
to cooperate and to appear at trial despite the the taxpayer has no “fiduciary obligation” to
judge’s explicit warnings, it is apparent from
the record that lesser sanctions were futile.7
Therefore, the dismissal for failure to pro-
secute is proper under Tello, 410 F.3d at 744.8
8
(...continued)
other cause which the Court deems sufficient, the
7
See Rogers v. Kroger Co., 669 F.2d 317, 323 Court may dismiss a case at any time and enter a
(5th Cir. 1982) (noting that lesser sanctions in- decision against the petitioner.”).
clude, among others, explicit warnings).
9
See Little v. Liquid Air Corp., 37 F.3d 1069,
8
See also T AX COURT R. 123(b) (“For failure 1071 n.1 (5th Cir. 1993) (en banc) (per curiam)
of a petitioner properly to prosecute or to comply (explaining that court of appeals will not consider
with these Rules or any order of the Court or for evidence or arguments that were not raised in dis-
(continued...) trict court).

4
pay taxes to the Internal Revenue Service.10 reasons, we affirm here.
Id. In Tello, we affirmed the Tax Court’s dis-
missal for failure to state a claim, labeling the Furthermore, the Tax Court did not abuse
claims as “patently frivolous.”11 For the same its discretion in sanctioning Stearman $12,500
per case under § 6673(a), which allows sanc-
tions where a taxpayer institutes or maintains
10
Although, on appeal and in various filings a proceeding primarily for delay or his position
with which he inundated the Tax Court, Stearman in the proceeding is frivolous or groundless.
also challenged the constitutionality of various Tax As discussed above, Stearman failed properly
Court rules and asserted violations of due process
to prosecute his case, which indicates that he
and equal protection by Judge Vasquez,
maintained the proceedings primarily for delay,
Stearman’s complaint makes only the four claims
discussed above.
and his position in the proceeding was utterly
frivolous.
11
In Tello, 143 Fed. Appx. at 569-70, the court
held as follows: II.
The Commissioner moves in this court to
It is clear that Tello’s petition was the proper sanction Stearman $6,000 for maintaining a
subject of a dismissal for failure to state a frivolous appeal so that the government can be
claim. Petitions in the Tax Court are governed compensated for the cost of defending this ap-
by TAX CT . R. 34(b)(4), which states that a peal. Stearman has not responded to the mo-
petition must contain: “Clear and concise as- tion; his main arguments on appeal are the
signments of each and every error which the same frivolous ones he advanced in the Tax
petitioner alleges to have been committed by the
Court.
Commissioner in the determination of the
deficiency or liability . . . . Any issue not raised
in the assignments of error shall be deemed to As we recently cautioned in Tello, 410 F.3d
be conceded.” The assignments of error Tello at 745, a party who continues to advance
made in his petition for redetermination were long-defunct arguments invites sanctions.12
patently frivolous. The heart of Tello’s argu- Sanctions on pro se litigants are appropriate if
ment in the Tax Court was that the CIR has no
authority to collect tax revenue. It is manifest
that the CIR and the IRS have the authority to 11
(...continued)
collect tax r evenue by virtue of the Internal Comm'r, 23 F.3d 941, 943 (5th Cir. 1994).
Revenue Code. See I.R.C. §§ 7801-7804 Accordingly, we affirm the Tax Court’s dis-
(2000). Thus, his primary assignment of error missal of Tello’s petition for redetermination.
was plainly without merit. Furthermore, it is
evident that by virtue of promulgating official (Ellipses in original.)
tax documents, the CIR has not engaged in the
12
unauthorized practice of accounting or law. See also Parker v. Comm’r, 117 F.3d 785,
We have previously upheld the Tax Court's 787 (5th Cir. 1997) (noting that despite the warn-
dismissal of petitions for redetermination under ing “that their claims were meritless, the Parkers
Rule 34(b)(5) for failure “to allege any justicia- filed the present appeal in which they continued to
ble error in the determinations upon which the maintain that the entire Tax Code is an elaborate
notice of deficiency was based or any facts ‘fraud’ designed to ‘catch the naive’”); Coghlan v.
tending to support any such error.” Sochia v. Starkey, 852 F.2d 806 (5th Cir. 1988) (per
(continued...) curiam).

5
they were warned, as Stearman was, that their 1989), for example, the court doubled sua
claims are frivolous and if they were aware of sponte the amount of lump-sum appellate
“ample legal authority holding squarely against sanctions requested by the Commissioner be-
them.” Stelly v. Comm’r, 761 F.2d 1113, cause the circumstances indicated that higher
1116 (5th Cir. 1985) (per curiam) (“Although damages were appropriate.15
a court can demand a higher degree of respon-
sibility from members of the bar, litigants The extraordinary circumstances of this
cannot be treated as free to advance frivolous case indicate that greater sanctions are called
claims merely because they appear without for. Stearman knew that this court had dis-
counsel.”). Because Stearman explicitly ques- missed similar arguments as frivolous in the
tions the wisdom of the Tello cases in his brief, Tello cases, as shown by Stearman’s offensive
he must have been aware that the Tello cases insinuations with respect to this court’s alleged
rejected the theories that he advanced as lack of preparation in those cases.16 He was
patently frivolous.13 We accordingly grant the also warned by the Tax Court that his argu-
motion for sanctions of $6,000 for pursuing a ments are frivolous. Yet on appeal, rather
frivolous appeal pursuant to 26 U.S.C. than explaining why the Tax Court committed
§ 7482(c)(4), 28 U.S.C. § 1912, and Federal error, Stearman restated the myriad of claims
Rule of Appellate Procedure 38.14 with which he inundated the Tax Court and
added insults to the address of the Tax
Moreover, because the sanctions imposed
by the Tax Court (cumulatively $25,000) did
not deter Stearman from pursuing the same
frivolous arguments on appeal, we impose sua 15
See also Billman v. Comm’r, 847 F.2d 887
sponte an additional sanction of $6,000. See
(D.C. Cir. 1988) (finding that the tax protester’s
28 U.S.C. § 1912; FED. R. APP. P. 38. As
reassertion of the very claims for which he was
pointed out in Coghlan, 852 F.2d at 808 & previously sanctioned warranted doubling of earlier
n.1, “there is no question that the courts of ap- sanction).
peals have the ability to impose sanctions sua
sponte.” As we warned in Stelly, 761 F.2d at 16
In his appellate brief, Stearman appears to
1115-16, sanctions greater than reasonable at- insinuate that this court is incompetent:
torney’s fees and double costs may “be im-
posed under appropriate circumstances.” In It’s difficult to figure how this court could both
Stoecklin v. Comm’r, 865 F.2d 1221 (11th Cir. (A) know the legal reality of the “federal in-
come tax system” and (B) press these matters to
the extent this court have [sic] pressed them.
13 Upon review of this court’s decisions in the
See infra note 16.
Tello cases, it’s very clear that a review of the
14
See Tello, 410 F.3d at 745 (awarding the “naked case” is necessary.
same amount in a case where petitioner advanced
similar arguments); Parker, 117 F.3d at 787 (ap- Similarly, Stearman also insinuates that this court
proving the practice of imposing a lump sum sanc- has not afforded tax litigants adequate consider-
tion in lieu of costs because it “saves the govern- ation: “There is no amount of sanctions or penal-
ment the additional cost of calculating its expenses, ties that will ever change the law or make up for
and also saves the court the time and expense of this court’s well-demonstrated disinclination to
reviewing the submission of costs”). study these matters.”

6
Court,17 and, as discussed above, of this court. unjustifiably consume the limited resources of
Stearman’s contempt for the judicial system the judicial system: “While judges, staff and
further demonstrates that he did not institute support personnel have expended energy to
the proceedings in good faith, but merely to dispose of this meritless appeal, justice has
harass the collection of public revenues. been delayed for truly deserving litigants.”
Foret v. S. Farm Bureau Life Ins. Co., 918
The $12,000 in sanctions is modest com- F.2d 534, 539 (5th Cir. 1990).
pared to the amount of unpaid taxes Stearman
owes for 1999, 2000 and 2001, which exceeds Other circuits have also long recognized the
$280,000. Although Stearman styles himself waste of judicial resources occasioned by such
as a “moron pro se from hickville Texas,” his groundless tax protester appeals:
annual income for 1999, 2000 and 2001 sug-
gests that he may not be as unsophisticated as
he pretends and that his pro se status relates to
an unwillingness, not an inability, to secure an 18
(...continued)
attorney. part of “just damages,” or single or double “costs.”
Generally, statutes allowing sanctions either
Even if we were to assume that Stearman is “define attorney’s fees as an element of costs” or
unsophisticated, what distinguishes this case “separate fees from other taxable costs.” Hutto v.
from other tax protester cases in which we im- Finney, 437 U.S. 678, 697 n. 28 (1978) (compar-
posed lesser sanctions is that Stearman in- ing 42 U.S.C. § 2000a-3(b) with 29 U.S.C. §
sulted this court, the Tax Court, and the op- 216(b) (1970 ed., Supp. V)). Section 2000a-3(b)
is in the former category because it provides, in
posing party. Even a pro se petitioner is re-
pertinent part, that the court in its discretion “may
quired to be respectful in judicial proceedings. allow the prevailing party . . . a reasonable attor-
Thus, it is difficult to imagine a lesser sanction ney’s fee as part of the costs.” In contrast, §
that would vindicate the integrity of the court 216(b) states that the court shall “allow a reason-
proceedings and deter Stearman from similar able attorney’s fee to be paid by the defendant, and
misconduct.18 Wasteful and dilatory appeals costs of the action.”

Unlike § 216(b), rule 38 does not define at-
17 torney’s fees as an element separate from costs.
Stearman argued in his appellate brief that
the Tax Court is a “kangaroo court the likes of Therefore, if attorney’s fees are an element of
which are rather difficult to match.” He also states costs, double costs may include double attorney’s
that “Vasquez is completely in the dark regarding fees. Additionally, “just damages” that would vin-
the legal mechanics of the ‘federal income tax dicate the integrity of the judicial proceeding and
system.’ That may go a long way to explain his deter Stearman from future misconduct could
maniacal conduct in this matter. Either way, a real include double attorney’s fees. Here, the Com-
judge doesn’t do what Vasquez does.” missioner argued in his motion for sanctions that
the average expense in attorney salaries and other
18
Rule 38 of the Federal Rules of Appellate costs that it incurred in defending frivolous tax-
Procedure provides that a court of appeals may payer appeals in which sanctions were awarded
award “just damages” and single or double costs during 2001 and 2002 was approximately $6,900.
for frivolous appeals. Rule 38 does not specify Thus, $12,000 is not more than double attorney’s
whether attorney’s fees that may be awarded are fees and other costs, that is, not more than “double
(continued...) costs” and “just damages.”

7
 The doors of this courthouse are of course
open to good faith appeals . . . . But we
can no longer tolerate abuse of the judicial
review process by irresponsible taxpayers
who press stale and frivolous arguments,
without hope of success on the merits, in
order to delay or harass the collection of
public revenues or for other nonworthy
purposes.

Granzow v. Comm’r, 739 F.2d 265, 270 (7th
Cir. 1984). The court in Granzow also
warned that it will not hesitate to impose even
greater sanctions for frivolous tax protester
appeals under appropriate circumstances. Id.

We therefore AFFIRM the decision of the
Tax Court, including the $25,000 in sanctions,
and impose $12,000 in sanctions on Stearman
for pursuing a frivolous appeal.

8