TAX COURT OPINION

Case: Terence J. Wolfe & Giselle M. Wolfe
Docket Number: 6914-02
Judge: Gale
Opinion Type: memo
Filed: 08/19/2004
Pages: 14

T.C. Memo. 2004 186 UNITED STATES TAX COURT WFO CORPORATION, ET AL.,1 Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent I Docket Nos. 6913-02, 6914-02, 6915-02, i 6916-02. Filed August 19, 2004. Terence J. Wolfe and Giselle M Wolfe, pro sese. Giselle M. Wolfe (an; officer), for petitioner WFO Corporation. Steóhen J. Neubeck and John A. Freeman, for respondent. MEMORANDUM FiNDINGS OF FACT AND OPINTON GALE, Judge: Respondent determined deficiencies in petitioners' Federal inco e taxes, additions to tax, and 1 Cases of the following petitioners are consolidated Terence J. and. Giselle M. Wolfe, docket No. 6914-02; herewith: Terence J. Wolfe, docket No. 6915-02; and Giselle M. Wolfe, docket No. 6916-02. SERVED AUG 1 9 2004 - 3 - stipulation of settled issues, which resolved all pending issues in these cases, was initially submitted by counsel for the parties on March 11, 2003, the day before the scheduled trial. As a consequence, the tri 1 was canceled and the parties were ordered to submit stipulated decisions by May 12, 2003. t Commencing April 20, 2003, however, the Court received a series of documents from petitioner Terence É. Wolfe (Mr. Wolfe) and Joseph B. Mansour, in which Mr. Wolfe, speaking on his behalf and purportedly on behalf of etitioner Giselle M. Wolfe (Mrs. Wolfe), and Mr. Mansour, purporting to represent petitioner WFO Corp. (WFO), asserted that counsel for Mr. Wolfe, Mrs. Wolfe, and WFO had signed the stipulation of settled issues without authorization. On May 19, 2003, respondent filed a Motion for Entry of Decisions.' On June 4, 2003, the Court received both a response to respondent's motion, purportedly from 411 peti¼ioners (with Mr. Mansour purporting tÊ represent petitioner WFÒ), and a letter from Mrs. Wolfe in which :she asserted that she was the sole shareholder of WFO and that Mr. Mansour was not authorized to act on its behalf in this proceeding. The June 4 response reiterated the claim that petitioners'' counsel had signed the stipulation of settled issues without authorization. On June 10, 2003, the Court received a second letter from Mrs. Wolfe in which she advised that she had not signed or authorized the June 4 response where he requested a continuance until the Court's March 10, 2003, trial session in Columbus, Ohio. After extended discussion in two hearings of the merits of a continuance, which respondent opposed, and the establishment of a timetable under which petitioners would supply information to respondent's trial counsel,.a continuance was granted. On March 7, 2003, Mr. Wolfe and Joel S. Brant, Mr. McCarthy's associate, attended settlement negotiations with respondent. By day's end the parties had reached agreement on a basis for settling all issues. Respondent's counsel agreed to draft a stipulation of settled issues for petitioners to review, which was provided to petitioners on Saturday, March 8, 2003. Mr. and Mrs. Wolfe forwarded the draft stipulation to Mr. Mansour, who expressed his belief that petitioners should not have agreed to certain of its terms. In particular, he believed that respondent had double counted some of WFO's income and included some WFO income in the wrong year. After hearing Mr. Mansour's views, Mr. and Mrs. Wolfe refused to approve the draft stipulation and insisted n continuing negotiations with respondent. The parties had not esolved the issues that Mr. Mansour raised by the March 10, 2003, calendar call in Columbus, Ohio, which Mr. and Mrs. Wolfe attended. Counsel reported ·that the parties had not reached a settlement, and we set trial for the McCarthy then sought and obtained authority to sign the stipulation of settled issues once it was revised to reflect respondent's concessions òn.penalties. Mr. McCarthy communicated the acceptance to Mr. Neubeck and signed the revised stipulation of settled issues later that afternoon. Mr. Wolfe went to Mr. Neubeck's office after leaving Mr. McCarthy's office and thanked him for his cooperation in settling the cases. Late on the afternoon of March 11, 2003, counsel faxed the signed tipulation of settled issues to this Court. We canceled the trial and issued an order requiring the parties to file stipulated decision documents no later than May 12, 2003. Counsel filed an original signed version of the stipulation of settled is ues with the Court on March 13, 2003.3 II. Efforts To Repudiate the Settlement Shortly after the trial was canceled, Mr. Mansour convinced Mr. Wolfe that petitioners should not have agreed to the settlement, and Messrs. Wolfe and Mansour began their efforts to repudiate it. Mr. Wolfe first instructed Mr. Mansour to write Mr. McCarthy, then followëd up with his own letter, requesting 3 Counsel faxed a signed copy of the stipulation of settled issues to the Court on Mar. 11, 2003, pursuant that they do so as a condition of canceling the trial. However, this version (dated March 11) contained both original and faxed signatures. To provide aj document wiEh original signatures for filing, counsel re-signedj the stipulation of settled issues on Mar. 12, 2003. Court, and it was filed oh Mar. 13, 2003. They forwarded the March 12 origiEal to our requirement to the _ g - On April 20, 2003, Messrs. Wolfe and Mansour submitted an unsolicited response to respondent's opposition to Mr. McCarthy's motion to withdraw, which they supplemented 2 days later. Both the original and supplemental submissions addressed the question of whether the settlement should be enforced. Attached to the original submission was an affidavit signed by Mr. Wolfe, in which Mr. Wolfe stated th t Mr: McCarthy had signed the .stipulation of settled issues without his or Mrs. Wolfe's authorization. Mr. Wolfe stated in the affidavit that he had advised Mr. McCarthy on March 11 that there were unagreed issues, that no settlement was authorized until those issues were resolved, and that Mr. McCarthy advised him that he would obtain concessions from respondent on those issues. Mr. Mansour signed the submissions on behalf) of WFO, identifying himself as WFO's secretary.' Mr. Wolfe signed the submissions on his own behalf. Mrs. Wolfe did not sign these submissions; instead, Mr. Wolfe signed her name, writing "(by POA)" next to the signature. On April 21, 2003, Mrs. Wolfe, under pressure from Mr. Wolfe, agreed to sign two affidavits, one on behalf of herself and one on behalf of WFO, to the same effect as Mr. Wolfe's * Attached to the submission were two documents fashioned as Notices of Entry of Appearance (dated Apr. respectively) appearance" as the representative of WFO in his capacity as its secretary. 9 and 14, 2003, in which Mr. Mansour purported to "enter an - 11 - At some point after the March 11 meeting at which they agreed to the settlement,.Mr. and Mrs.; Wolfe began divorce proceedings. At a hearing before the Butler County (Ohio) Court of Common Pleas, Division of Domestic Relations, dn May 22, 2003, Mr. and Mrs. Wolfe agreedi to have one of the managers of Bristol's appointed temporary receiver to manage "their business known as Bristol's." The; order adopting this agreement is dated May 29, 2003. The order refers only to the trade name Bristol's" and not to th corporate entity WFO. It provides in pertinent part: [sic]. income, deposit to be established by the receiver or a bank The parties agree to have a temporary receiver/manager of their business and specifically agree to Ivan It is agreed the receiver s all Deborde' collect all th-e same into a bank account account agreed upon by the parties and that only that receiver shall have the authority to withdraw funds from that account or. to write checks out of that account to pay the ordinary and usual bills and expenses of specifically authoriÒed by the pa'rties to pay the ordinary and normal bills and expenses of to keep it operating·until * *·* the order, Mr. Deborde was to remain as "receiver/manager" the business further order of this Court, the business. The receiver shall be and is Under until the court could hold a hearing "to determine the management and running of the parties' business known as Bristol's". In the final paragraph, the order provides that the agreement "was entered into to allow the business to operate until the parties can have. the more complete and full hearing" on the issue. - 13 - On June 10, 2003, the Court received a second letter from Mrs. Wolfe, advising that she had not signed or authorized the June 4 response to the Motion for Entry of Decisions on her behalf or on behalf of WFO. We set a hearing in Washington, D.C., to determine the person authorized to represent WFO and to receive evidence with respect to respondent's Motion for Entry of Decisions. III. Hearing At the hearing, Mr. änd Mrs. Wolfe, Messrs. McCarthy and Brant,5 and Mr. Neubeck' testified.7 In light of the unsettled question of the then-authorized representative of WFO, we permitted both Mrs. Wolfe and Mr. Mansour to present whatever argument and evidence each wished on behalf of WFO. Mrs. Wolfe and Messrs. Brant, McCarthy, and Neubeck all testified consistently with the facts found above. Mrs. Wolfe s We ruled' that Mr. Wolfe and Mrs. Wolfe (on her own behalf and on behalf of WFO) had waived any attorney-client privilege by voluntarily testifying about communications they had with their attorneys regarding the settlement process, see State v. Post, 513 N.E.2d 754, 761 (Ohio 1987), and ordered Messrs. McCarthy and Brant Profl. Resp., DR 4-101(C) (2) and (4) to testify regarding those conversations, see Ohio Code of (1998). 6 To enable Mr. Neubeck to testify as a fact witness, respondent obtained diffekent counsel portion of the hearing concerning enforcement of (John A. Freeman) for that the settlement. 7 Several days after the hearing, Mr. Mansour,, as WFO's purported representative, moved to reopen the evidentiary hearing so that he could testify. Despite having the opportunity at the hearing, Mr. Mansour failed to call himself as a witness when he presented WFO's case. We accordingly denied his motion. - 15 - January 20, 2003 ! Att: Jim McCarthy Ref: To our recent meeti'ng on January 15th Jim: It was a pleasure meeting with you and Jody Brant again and I am looking forùard to working together in regards to the IRS matters of Giselle's, WFO CORPORATION and mine. As you know Giselle had asked me to work with Joe Mansour and to represent WFO in front of the appeals (cid:16)042office in order to resolve the'unresolved iss,ues. As you know, we were unÒble to resolve these issiues and it looks as if we will be going to court. Even though Giselle ánd I have retained your services in representing us in this matter, you or Jody are not to make any decisions in our behalf without our written approval. If you have any questions about contact me. the above, please Sincerely, Terry J. Wolfe Regarding Mrs. Wolfe s signature on the response to respondent'.s Motion for E try of Decisions, Mr. WËlfe admitted to signing on her behalf and without her knowledge, omitting the "(by POA)" designation he h!ad used on the previous submissions to the Court. He claimed that he thought he was entitled to do so by virtue of a.power of attorney he believed he held for Mrs. Wolfe. - 17 - (1972). In Kropp v. Commissioner, T.C. Memo. 2000-148, we described our role in this·regard as follows: "As a trier of fact, it is our duty to listen to the testimony, observe the demeanor of the witnesses weigh the evidence, and determine what we believe." Having done so here, we have no doubt that Mr. Wolfe and Mrs. Wolfe (for herself and on behalf of WFO) gave Mr. McCarthy specific authori y to sign the stipulation of settled issues and settle these cases. Messrs. McCarthy and BZant and Mrs. Wolfe convincingly testified that Mr. McCarthy sought and obtained express authorization from Mr. and Mrs. Wolfe on the afternoon of March 11, 2003, to settle the cases and sign the stipulation of settled issues on behalf of all petitioners. According to the testimony of Mrs. Wolfe and Messrs. McCarthy and Brant, Mr. and Mrs. Wolfe were faced with a decision to accept respondent's final offer or to go to trial the next day;. While Mr. Mansour persisted in his claim that income was being double counted and accounted for in the wrong year, Mr. and M s. Wolfe were advised by Messrs. McCarthy and Brant that Mr. Neubeck would not concede those issues, and they chose to settle after Mr. Neubeck made concessiòns on penalties. Mr. Neubeck's recollection of the events of March 11 substantially corroborates that of Mrs. Wolfe and Messrs. McCarthy and Brant. I - 19 - opportunity to review a revised stipulation of settled issues on March 12. The implausibility of Mr. McCarthy's leaving settlement unresolved on March 11 is heightened by the fact that Mr. and Mrs. Wolfe had already once backed away from a tentative settlement' reached the preceding Friday (March 7). We find it unlikely that Mr. McCarthy would have failed to review the terms of respondent's offer with the Wolfes and to obtain their final decision whether to accept it on March 11, given these circumstances. Second, Mr. Wolfe has offered no convincing explanation concerning why, if be believed he had not authorized a settlement, he did not think he needed to be present in Columbus.for a trial on the afternoon of March 12, which trial had been scheduled in his pkesence at calendar call on March 10. Finally, it is undisputed that Mr. Wolfe went to Mr. Neubeck's office on March 11 after meeting with Mr. McCarthy and thanked Mr. Neubeck regarding the settlement. Mr. Wolfe attempts to explain this action by insisting that he was assured by Mr. McCarthy that Mr. Neubeck would make the two changes in the settlement he sought. However, we simply do not believe that Mr. Wolfe would have thanked the opposing counsel unless he understood that a final agreement had been reached. Another aspect of Mr. Wolfe's claims invites !further skepticism. To support his position that the set lement was not properly authorized, Mr. olfe offered as evidence at the hearing 21 - even suggest that a requirement of written authorization to settle existed, either in their post-March 11 letters to Mr. McCarthy challenging his authority to settle, in Mr. Wolfe's affidavit, or in their voluminous submissions to the Court disavowing the settlement. Finally, in at least one other instance Mr. Wolfe submitted a misleading document to the Court; namely, the June 4 response to respondent's Motion for Entry of Decisions on which, as Mr. Wolfe later admitted, he signed his then-estranged wife's name, without her knowledge, at a time when they were engaged in a dispute over the appropriate course of action in.this proceeding.. Moreover, on this document Mr. Wolfe omitted the "(by POA)" designation he had placed next to Mrs. Wolfe's purported signature on a previous submission, after having been specifically advised by the Court that such a designation would result in a document's being disregarded with respect to his wife. Given Mr. Wolfe's demonstraÊed willingness to proffer misleading documents and the other factors discussed above, we are not persuaded that the January 20, 2003, letter offered into evidence by Mr. Wolfe was ever sent to Mr. McCarthy. Based on the evidence adduced at the hearing and the entire record in these cases, we reject Mr. Wolfe's testimony and arguments, and conclude that Mr. Wolfe and Mrs. Wólfe (for herself and as the representative of WFO) authorized Mr. McCarthy to sign the stipulation of..settled issues and settle these cases. - 23 - Mr. McCarthy signed the sÊipulation of settled issues on behalf of WFO on March 11, 2003, are undisputed. The pending dispute over whether Mr. Mansour should take the place of Mrs. Wolfe as the authorized representative of WFO in this proceeding relates to a period beginning in Åpril of 2003, after the settlement was I agreed to and the stipulation of settled issues was signed.a Accordingly, the dispute over who currently represents WFO in this proceeding does not affect the determination concerning enforcement of the settlement. In reliance on the stipulation of settled issues, this Court canceled the trial. Thus petitioners must meet a high standard before we will relieve themiof their settlement, such as a showing of lack of formal consent, fraud, mistake, or similar ground. Dorchester Indus., Inc. v. Commissioner, 'supra at 335. Messrs. Wolfe and Mansour have made no such showing. To the contrary, the record establishes that Mr. and Mrs. Wolfe were aware of the issues Mr. M nsour had raised and, after consulting with their counsel, decided to accept the settlement rather than incur the expense and risk öf a trial. Accordingly, we conclude that petitioners are bound by the terms of the stipulation of a Messrs. Wolfe and Mansour appear to have conceded, as late as Apr. 21, 2003, representative of WFO by virtue of their causing her to sign two affidavits on that date concerning the settlement,| one on her own behalf and one on behalf of WFO. that Mrs. Wolfe was the authorized - 25 - We must decide whether Mr. Mansour has established that he is an officer of WFO with authority to represent WFO before the Tax Court. We determine Mr. Mansour's capacity to represent WFO under Ohio law. See Rule 60 (c) . As set forth below, we conclude that Mr. Mansour has not established that he was properly appointed as ·an officer of WFO with authority to represent WFO in this proceeding, and accordingly we' decline to recognize him as WFO's representative under Rules 24(b) and 63. . Ohio Rev. Code sec. 2735.04 (Anderson 2000) rovides: ,, Under the control of the court which appointed the Revised him, as provided in section 2735.01 of Code, a receiver may bring and defend actions in his own name as receiver, property, compromise demands, such acts respecting the property as the court authorizes. receive reÈ1ts, collect, compound for, and take and keep possessiön of inake transfers, ·and generally do This provision has been construed as giving courts the ability to expand or limit a receiver's power. State ex rel) Celeb'reeze v. Gibbs, 573 N.E.2d 62, 67-68 (Ohio 1991) ("We interpret this statute as enabling the trial court to exercïse it s sound judicial discretion to limit or expand a receiver s powers as it deems appropriate."). Thus, in Ohio, a receiver las only the authority granted.to him by a court. We do not read the order appointing Mr. Debo de "temporary receiver/manager" of the business that was identified only as "Bristol's" as giving Mr. Deborde the power to ap oint officers for WFO and direct litigation in this Court. Mr. Deborde is one representative. As a contiequence, Mrs. Wolfe remains as WFO's - '27 - authorized representative III. Sanctions At the conclusion of the hearing, respondent raised the issue of sanctions against petitioners. We had also advised the parties prior~ to the hearing that, 'in the event th ir positions appeared unjustified afte the hearing, sanctions might be appropriate. Accordingly by separate order we shall permit the parties to address the issue of sanctions and shall defer entering decisions in these cases pending our consideration of that issue. To reflect the foregoing, An appropriate order will be issued. (cid:16)042 1