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No. 95-2938

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Dennis W. Harker, Mary Harker, *

*

Appellants, *

* Appeal from the 

v. * United States Tax Court.

*

Commissioner of Internal *

Revenue, *

*

Appellee. *

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 Submitted: February 12, 1996

 Filed: May 3, 1996

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Before BOWMAN, BEAM, and LOKEN, Circuit Judges.

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BOWMAN, Circuit Judge.

Dennis and Mary Harker appeal the decision of the Tax Court finding

them liable for tax deficiencies and fraud penalties. For reversal, they

argue that the Tax Court abused its discretion when it denied their motion

to disqualify Jeffrey A. Schlei, an attorney with the Office of District

Counsel (ODC) for the Iowa District Office of the Internal Revenue Service

(IRS), and the entire legal staff of the ODC from representing the

Commissioner in the Tax Court proceedings. We affirm.

In July 1990, Dennis Harker pled guilty to tax evasion for the

taxable year 1987, and Mary Harker pled guilty to tax evasion for the

taxable year 1985. The Harkers were represented in these criminal tax

proceedings by Mark Godwin of Isaacson & Clarke, a Des Moines law firm of

four attorneys. Schlei was an associate with this law firm between 1987

and 1991. He left the law firm and joined the ODC in 1991. In April 1992,

following the resolution of
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their criminal cases, the Harkers received a notice of deficiency from the

Commissioner of the IRS. The Commissioner's notice stated that the Harkers

were liable for various tax deficiencies and civil fraud penalties for

taxable years 1985, 1986, and 1987.

 

In July 1992, the Harkers retained new counsel and filed a petition

for a redetermination of deficiency in the Tax Court. In August 1993,

Schlei was assigned to assist IRS attorney Mary Ann Waters in representing

the Commissioner in the Harkers' deficiency trial before the Tax Court.

In October 1993, just two weeks before trial, the Harkers, asserting they

only recently had discovered that Schlei had been an associate with the law

firm that represented them during the now-resolved criminal tax

proceedings, filed a motion to disqualify Schlei and the ODC. The Harkers

argued that Schlei's former association with the law firm disqualified him

from now representing the Commissioner against the Harkers in the civil

deficiency trial. The Harkers also argued that Schlei's former association

with the law firm required disqualification of the entire ODC. 

The Tax Court denied the Harkers' motion on the basis of Model Rule

of Professional Conduct 1.11(c)(1) (1992), which provides that a government

attorney shall not participate in a matter in which the attorney had

personal and substantial involvement while in private practice. The court

found that Schlei had no personal or substantial involvement in the

Harkers' legal matters while at the law firm, had not seen or reviewed

their files, and was not privy to their verbal or written communications.

Having determined there was no ground to disqualify Schlei, the court also

rejected the Harkers' request to disqualify the entire ODC. The court

noted that motions to disqualify are subject to "strict judicial scrutiny"

because of the cost and inconvenience they may impose on the judicial

system and the party whose attorney is disqualified. The court cited the

fact that the Harkers filed their motion just two weeks before trial as

evidence that they had employed the
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motion primarily as a delay tactic. At the conclusion of the trial, the

Tax Court sustained the Commissioner's determination of tax deficiencies

and fraud penalties against the Harkers. 

 

On appeal, the Harkers do not argue the merits of the Tax Court's

ruling against them on the question of their liability for tax deficiencies

and fraud penalties. Instead, they argue only that reversal is required

because the Tax Court abused its discretion in denying their motion to

disqualify Schlei and the entire staff of the ODC. The Harkers also do not

argue that the Tax Court misapplied Model Rule of Professional Conduct

1.11(c)(1) to the facts of their case, nor do they challenge the court's

finding that Schlei was not personally and substantially involved in the

Harkers' criminal tax cases while at the law firm. We note that the

Harkers did not present the court with any evidence to counter Schlei's

affidavit attesting to his lack of personal involvement in the Harkers'

criminal tax cases. Rather, the Harkers contend their case should be

reversed and remanded because the Tax Court should have applied the Model

Code of Professional Responsibility and the decisions of this Court

interpreting the Model Code. We reject these arguments.

The decision to grant or deny a motion to disqualify an attorney

rests in the discretion of the trial court, and we will reverse this

determination only upon a showing of abuse of that discretion. A.J. ex

rel. L.B. v. Kierst, 56 F.3d 849, 859 (8th Cir. 1995). Because of the

potential for abuse by opposing counsel, "disqualification motions should

be subjected to "'particularly strict judicial scrutiny.'" Optyl Eyewear

Fashion Int'l Corp. v. Style Cos., 760 F.2d 1045, 1050 (9th Cir. 1985)

(quoting Rice v. Baron, 456 F. Supp. 1361, 1370 (S.D.N.Y. 1978)). When

reviewing a decision of a district court on a motion for disqualification

of an attorney, we apply the same rules governing the professional conduct

of attorneys that the district court has adopted. See Blair v. Armontrout,

916 F.2d 1310, 1333 (8th Cir.)
 The Model Rules of Professional Conduct (1992), promulgated

1

by the American Bar Association in August 1983, have been adopted

by the United States Tax Court, as well as approximately thirty-six

states and the District of Columbia. 2 G. Hazard, Jr. & W. Hodes,

The Law of Lawyering, A Handbook on The Model Rules of Professional

Conduct § AP4:101 (2d ed. 1992 & Supp. 1994). A minority of states

have adopted the older Model Code of Professional Responsibility.

 Both of the cases relied upon by the Harkers were overruled 2

in part by In re Multi-Piece Rim Products Liability Litigation, 612

F.2d 377 (8th Cir. 1980) (en banc) (overruling portion of cases

that dealt with appealability of disqualification orders). The

overruled portions of those decisions, however, are not relevant to

this appeal. 

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(reviewing lower court's decision granting motion to disqualify, this Court

applied Model Rules instead of Model Code because Western District of

Missouri, where underlying habeas corpus proceeding was brought, had

adopted Missouri Rules that were consistent with Model Rules), cert.

denied, 502 U.S. 825 (1990). We do not discern any reason for not

extending the same approach to our review of rulings by the Tax Court on

motions to disqualify. The Tax Court has adopted the Model Rules of

Professional Conduct to govern the conduct of attorneys who practice before

it. Tax Court Rule 201(a), reprinted in 26 U.S.C.A. foll. § 7453 (West

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1986); see also Duffey v. Commissioner, 91 T.C. 81, 82 (1988).

 

In support of their argument for disqualification, the Harkers rely

on Arkansas v. Dean Foods Products. Co., 605 F.2d 380 (8th Cir. 1979), and

Fred Weber, Inc. v. Shell Oil Co., 566 F.2d 602 (8th Cir. 1977), cert.

denied, 436 U.S. 905 (1978). Those cases arose in the United States

2

District Court for the Eastern District of Arkansas and the United States

District Court for the Eastern District of Missouri, respectively, and both

district courts applied the Model Code. The Harkers' reliance on Dean

Foods and Fred Weber therefore is misplaced because those cases interpret

the Model Code, which, as we already have pointed out, does not apply in

the Tax Court, for that court has adopted the Model Rules. In Dean Foods

and Fred Weber, we concluded that, in order to prevent
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the "appearance of impropriety," a lawyer is presumed under the Model Code

to have knowledge of all confidential information relating to clients of

the lawyer's firm and thus is disqualified from taking a position adverse

to the former client in a substantially related matter. Dean Foods, 605

F.2d at 385-86; Fred Weber, 566 F.2d at 608-09. Because the Tax Court has

adopted the Model Rules, which do not incorporate the Model Code's

appearance-of-impropriety standard, those cases interpreting the Model Code

do not govern our review of the Tax Court's decision.

Additionally, the Harkers argue that the ethics rules adopted by the

United States District Court for the Southern District of Iowa, i.e., the

Model Code, are relevant here because that federal district court is an

alternative forum in which the Harkers could have paid their deficiency and

sued for a refund. The Harkers further argue that, because Schlei is a

member of the Iowa bar, his conduct should be governed by Iowa ethics rules

in matters before the Tax Court. These arguments are entirely without

merit. The fact that Schlei is a member of the Iowa bar and that the

Harkers could have litigated this case in another forum does not provide

any basis for requiring the Tax Court to apply rules of professional

conduct other than those that the Tax Court has chosen to adopt. The

Harkers selected the Tax Court as the forum in which to litigate this

matter and therefore necessarily assented to be governed by the rules of

that forum. 

We conclude the Tax Court did not abuse its discretion in denying the

Harkers' motion to disqualify Schlei. Given that conclusion, it

necessarily follows that the Harkers' argument that Schlei's

disqualification should be imputed to the entire legal
 Our decision does not mean that we believe the government

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used its best judgment in assigning Schlei to this case. The

government knew, prior to assigning Schlei to represent the

Commissioner in the Harkers' tax-deficiency trial, that Schlei had

worked as an associate in a four-person law firm that previously

had represented the Harkers in criminal tax proceedings. Even

though Schlei had no personal or substantial involvement in the

Harkers' criminal cases while at the law firm, surely the

government had other attorneys from whom to choose in assigning

counsel to the Harkers' civil case. Had Schlei not been assigned

to the deficiency trial, this wholly unnecessary controversy about

disqualification would have been avoided.

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staff of the ODC also fails. The judgment of the Tax Court is affirmed.3

A true copy.

Attest:

CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.