THOMAS V. CASSIDY, PETITIONER V. UNITED STATES OF AMERICA

   No. 89-1734

   In The Supreme Court Of The United States

   October Term, 1990

   On Petition For A Writ Of Certiorari To The United States Court Of
Appeals For The Seventh Circuit

   Brief For The United States In Opposition

            TABLE OF CONTENTS
   Question Presented
   Opinions below
   Jurisdiction
   Statement
   Argument
   Conclusion

                            OPINIONS BELOW

   The opinion of the court of appeals (Pet. App. 1-24) is reported at
892 F.2d 637.  The order of the district court (Pet. App. 27-56) and
the order of bankruptcy court (App., infra, 1a-2a) are unreported.

                             JURISDICTION

   The judgment of the court of appeals was entered on January 4,
1990.  A petition for rehearing was denied on February 5, 1990.  The
petition for a writ of certiorari was filed on May 7, 1990 (Monday).
The jurisdiction of this Court rests upon 28 U.S.C. 1254(1).

                          QUESTION PRESENTED

   Whether the court of appeals correctly applied the doctrine of
judicial estoppel to bar petitioner from relitigating the
dischargeability of his tax liabilities where the court of appeals had
previously concluded, after petitioner put the issue before the court,
that those liabilities were nondischargeable.

                               STATEMENT

   1. On June 24, 1980, the Commissioner of Internal Revenue issued to
petitioner a notice of deficiency in federal income taxes for the
fiscal years ended August 31, 1974, and August 31, 1975, based on the
inclusion of unreported income and the disallowance of various
deductions.  Since the Commissioner determined that all or part of the
underpayment of tax was due to fraud, he asserted against petitioner
additions to tax for fraud pursuant to 26 U.S.C. 6653(b).  Petitioner
filed a petition in the Tax Court seeking a redetermination of the
deficiencies and additions to tax.  Pet. App. 85-86.

   On February 14, 1983, while the Tax Court case was pending, an
involuntary petition in bankruptcy was filed against petitioner under
Chapter 7 of the Bankruptcy Code (11 U.S.C.) in the United States
Bankruptcy Court for the Central District of Illinois.  On January 3,
1984, petitioner notified the Tax Court of that bankruptcy proceeding,
and the Tax Court stayed its proceedings in accordance with the
"automatic stay" requirement of 11 U.S.C. 362(a)(8).  On March 13,
1984, petitioner received a discharge from the bankruptcy court,
releasing him from all dischargeable debts.  One month later, on the
government's petition, the bankruptcy court lifted its stay to allow
the Tax Court case to proceed.  Pet. App. 87-88.

   The Commissioner then mailed to petitioner a request for
admissions, together with other discovery documents, pursuant to Rule
90 of the Rules of Practice and Procedure of the United States Tax
Court (Jan. 16, 1984).  When petitioner failed to respond to the
request for admissions within the 30-day period provided by Tax Court
Rule 90, the Commissioner moved for summary judgment.  /1/ The Tax
Court held that the matters set forth in the request for admissions
were deemed admitted, and it then gave petitioner an opportunity to
respond to the Commissioner's motion.  As part of his response,
petitioner filed a motion to dismiss with prejudice and a motion for
summary judgment in which he asserted that the tax liabilities had
been discharged in bankruptcy.  Pet. App. 89-91.

   Following a hearing, the Tax Court granted the Commissioner's
motion for summary judgment.  51 T.C.M. (CCH) 784 (1986);  see also
Pet. App. 81-83;  id. at 93-95.  The court found that the request for
admissions had been mailed on June 12, 1984, and that the matters
contained in the request should be deemed to be admitted because
petitioner had failed to respond to them within 30 days.  The court
held that the deemed admissions fully supported the deficiencies
determined by the Commissioner, and that the admitted facts were
sufficient to meet the Commissioner's burden in proving that the
additions to tax for fraud should be imposed.

   The Tax Court also summarily denied petitioner's motion for summary
judgment, which had been based on the contention that his tax
liabilities were discharged in bankruptcy.  The court observed that
the case before it was for redetermination of income tax deficiencies,
not for review of collection matters.  It explained that "if there is
any question as to the collectibility of any income tax deficiencies,
which we doubt, that question is beyond the jurisdiction of this
Court." 51 T.C.M. at 786 n.3;  see Pet. App. 4-5.

   Petitioner appealed, renewing his contention that the tax
liabilities had been discharged in bankruptcy, and the court of
appeals affirmed.  814 F.2d 477 (Cassidy I) (Pet. App. 84-106).  The
court specifically noted and rejected petitioner's argument that the
tax liabilities and additions to tax for fraud had been discharged
(Pet. App. 96-98).  The court stated that petitioner "first argues
that his tax liabilities and fraud penalties were discharged in the
chapter 7 bankruptcy proceeding" (id. at 96).  The court explained
that Section 523 of the Bankruptcy Code excepts certain debts from
discharge and held that because petitioner's "deficiencies here
resulted from fraud, subsection 523(a)(1)(C) renders them
nondischargeable" (Pet. App. 97).  The court of appeals further stated
that, since the underlying taxes were nondischargeable, the additions
to tax for fraud "are similarly nondischargeable," pursuant to 11
U.S.C. 523(a)(7)(A) (Pet. App. 98).  Petitioner did not seek further
review.

   2. About eight months after the Seventh Circuit decided in Cassidy
I that the tax liability and additions to tax were nondischargeable,
petitioner filed with the United States Bankruptcy Court for the
Central District of Illinois a complaint to determine the
dischargeability of his liability for the same taxes and additions to
tax.  The government moved to dismiss the complaint on res judicata
grounds.  The bankruptcy court granted the government's motion (App.,
infra, 1a-2a), and petitioner appealed to the district court.  The
district court affirmed (Pet. App. 27-56), finding that petitioner's
complaint was barred by principles of collateral estoppel, rather than
res judicata (see id. at 28, 36).

   The court of appeals affirmed (Cassidy II) (Pet. App. 1-24).  The
court ruled that the doctrines of collateral estoppel and res judicata
were "technically inapplicable" because the Tax Court in Cassidy I did
not have jurisdiction to determine the dischargeability of the
liability.  Accordingly, the court of appeals found that its own
decision in Cassidy I was not entitled to res judicata or collateral
estoppel effect on this point because the portion of the opinion
addressed to dischargeability was dictum that was unnecessary to
affirming the Tax Court's judgment.  Pet. App. 9-12.  Moreover, the
court of appeals observed, under Tax Court Rule 90(f) deemed
admissions in a Tax Court proceeding may not be used in a bankruptcy
proceeding (see Pet. App. 9), and therefore the Tax Court's finding of
fraud in Cassidy I was not entitled to preclusive effect in the
bankruptcy court.

   The court of appeals held, however, that the doctrine of judicial
estoppel barred petitioner from relitigating the dischargeability
issue (Pet. App. 12-21).  The court stated that this doctrine is
"intended to prevent the perversion of the judicial process" by
forbidding a litigant from taking inconsistent positions whenever it
suits his interest at the time (id. at 13).  The court explained that
petitioner was now seeking to advance a position diametrically
opposite to the one that he successfully urged upon the court of
appeals on the prior appeal, and that he is estopped from doing so
(id. at 16-17):

      (Petitioner) unequivocally urged the Cassidy I court to consider
      the defense of discharge.  His present position is that it was
      error for the court to give him what he wanted.  Even though
      (petitioner) did not prevail on appeal as a whole, he did
      prevail on the subsidiary question of what issues were to be
      decided by the court.  * * * (Petitioner's) maneuverings were
      clearly intended to delay the inevitable day of reckoning, and
      in maneuvering he is trying to whipsaw this court.  That is
      exactly the evil that the doctrine of judicial estoppel was
      meant to avoid.

The court concluded that "(i)t would be unjust to require the
Commissioner to relitigate a question that was originally raised by
(petitioner) himself, or to allow (petitioner) a second full-scale
adjudication of an issue that the court has already resolved against
him" (Pet. App. 21).

                               ARGUMENT

   The court of appeals correctly held that, in light of his
representations in the prior appeal, petitioner was estopped from
relitigating here the court's conclusion on the prior appeal that
petitioner's additions to tax for fraud were not discharged in
bankruptcy.  This holding turns on the facts of this case and does not
conflict with any decision of this Court or of another court of
appeals.  Accordingly, there is no reason for further review.

   1. As the court of appeals explained (Pet. App. 13), the doctrine
of judicial estoppel is intended to prevent a party from perverting
the judicial process by taking inconsistent positions.  See, e.g.,
Edwards v. Aetna Life Ins. Co., 690 F.2d 595, 599 (6th Cir. 1982);
Scarano v. Central R.R., 203 F.2d 510, 513 (3d Cir. 1953).  This Court
long ago observed that, "(w)here a party assumes a certain position in
a legal proceeding, and succeeds in maintaining that position, he may
not thereafter, simply because his interests have changed, assume a
contrary position." Davis v. Wakelee, 156 U.S. 680, 689 (1895).  That
principle was correctly applied by the court of appeals to bar
petitioner's effort to relitigate the question of dischargeability of
the fraud penalties.

   Petitioner clearly has taken inconsistent positions in the course
of his continuing efforts to have the courts declare that his
bankruptcy discharged any liability for fraud penalties.  In Cassidy
I, petitioner urged before both the Tax Court and the court of appeals
that fraud penalties should not be imposed because they had been
discharged in bankruptcy.  In accordance with petitioner's submission
that the question of dischargeability should be resolved on appeal
from the Tax Court, the Seventh Circuit rejected petitioner's position
on the merits, ruling that Section 523(a)(7) of the Bankruptcy Code
exempted the fraud penalties from discharge.  Now, in Cassidy II,
petitioner takes precisely the opposite position regarding the proper
scope of the Tax Court proceeding.  Contradicting his prior assertion
that the question of dischargeability was properly raised in the Tax
Court, petitioner argues that the question was not before the Tax
Court and therefore that the Seventh Circuit's rejection in Cassidy I
of his claim on the merits should be disregarded as dictum.  The court
of appeals correctly held that petitioner is estopped from making this
argument.  Having argued to the Seventh Circuit in Cassidy I that it
was required to rule on dischargeability, thereby inducing the court
to address the merits of that issue, petitioner is not free on a
second appeal to contradict that argument now that he is dissatisfied
with the court's resolution on the merits.  As the court of appeals
stated below (Pet. App. 17), this is an effort "to whipsaw this court
(, which) * * * is exactly the evil that the doctrine of judicial
estopped was meant to avoid." /2/

   Contrary to petitioner's contention (Pet. 51), the decision below
is fully consistent with this Court's decision in Brown v. Felson, 442
U.S. 127 (1979).  In that case, a debtor filed for bankruptcy after
stipulating in a state court collection suit that a creditor was
entitled to judgment on a particular claim.  In the subsequent
bankruptcy proceeding, the creditor asserted that the liability was
nondischargeable under pre-Bankruptcy Code law (11 U.S.C. 35(a)(2) and
(4) (1976)) because the liability arose from fraud or obtaining money
under false pretenses.  The debtor objected that res judicata
principles barred the creditor from asserting fraud because the
stipulated judgment that concluded the state court action made no
reference to fraud.  This Court disagreed, holding that the creditor
could introduce evidence in the bankruptcy court to support his
contention of fraud, in response to the new defense of bankruptcy
interposed by the debtor.  The Court explained that the debtor had
"upset the repose that would justify treating the prior state-court
proceeding as final, and it would hardly promote confidence in
judgments to prevent (the creditor) from meeting (the debtor's) new
initiative." 442 U.S. at 133-134.

   That decision lends no support to petitioner.  In contrast to the
creditor in Brown, petitioner here is not merely seeking an
opportunity to "actually litigate" (see Pet. 51) for the first time an
issue that previously had not assumed any importance;  rather, he is
seeking an opportunity to litigate for the second time an issue that
he had already persuaded the court of appeals to decide on a previous
occasion.  Nothing in this Court's decision in Brown suggests that a
court must allow a dissatisfied litigant to contradict his prior
position concerning the court's jurisdiction to rule on an issue in
order to give that litigant an opportunity to relitigate the court's
initial ruling.  /3/

                              CONCLUSION

   The petition for a writ of certiorari should be denied.

   Respectfully submitted.

   KENNETH W. STARR

      Solicitor General

   SHIRLEY D. PETERSON

      Assistant Attorney General

   GARY D. GRAY

   HOWARD M. SOLOMAN

      Attorneys

   JULY 1990

   /1/ Petitioner had previously ignored other informal and formal
discovery requests made by the Commissioner.  Pet. App. 87.

   /2/ Petitioner devotes the bulk of his submission to arguing the
merits of the dischargeability issue, which was not reached by the
court of appeals below.  See Pet. 40-49.  Thus, petitioner correctly
notes that the Eleventh Circuit held in Burns v. United States, 887
F.2d 1541 (1989), that additions to tax for fraud may be dischargeable
under 11 U.S.C. 523(a)(7), even though the underlying tax liabilities
are not.  While the Burns decision is at odds with the conclusion of
the Seventh Circuit on this point in Cassidy I, this case presents no
occasion for this Court to resolve the disagreement between those two
courts.  The decision in Cassidy I is not before the Court on this
petition;  the decision of the court of appeals below did not address
the merits of the dischargeability issue, but rather held -- correctly
-- only that petitioner is estopped from relitigating that issue after
he sought and obtained a ruling on it in Cassidy I.

   /3/ Petitioner appears to suggest (Pet. 52-53) that all of his tax
debts were discharged because the IRS did not file a request to
determine dischargeability or object to the bankruptcy court's
discharge order.  This suggestion is entirely without merit.  The
Bankruptcy Code provides that a discharge order discharges the debtor
of all pre-bankruptcy liabilities, except as provided in Section 523.
See 11 U.S.C. 727(b).  Except in limited circumstances not applicable
here (see 11 U.S.C. 523(c);  Bankr. R. 4007), a creditor is not
required to obtain a bankruptcy court determination that its claim
falls within the exceptions under Section 523.  Thus, there was no
need for the IRS to seek to litigate in the bankruptcy court the
question whether its tax debts were excepted from discharge.

   APPENDIX