Opinion ID: 461000
Heading Depth: 1
Heading Rank: 1

Heading: facts

Text: 2 Aruba Bonaire Curacao Trust Company, Limited (ABC) is the non-resident alien trustee of the four trusts that are the subject of this action. Pursuant to its duty to manage the trusts' assets prudently, ABC invested in several land development projects in California. Unfortunately, these investments soured and ultimately produced a lawsuit in which ABC was the defendant. ABC counterclaimed, however, and won a judgment of $1,108,804.70 from the original plaintiff in the action. ABC agreed that the plaintiff could pay this sum in six monthly installments. 3 Before the plaintiff had paid the third installment, however, the Commissioner of Internal Revenue (Commissioner) entered the picture. The Commissioner issued deficiency assessments against ABC, alleging that the trusts owed taxes for several years during which they were doing business in the United States. These assessments amounted to $129,549.56. The Commissioner therefore demanded that the plaintiff in the California litigation pay all sums still owing on the judgment directly to the Internal Revenue Service. Realizing that competing parties had claims to the funds, the plaintiff paid the remaining portion of the judgment into the United States District Court for the Central District of California. That court is currently holding the funds, pending resolution of the tax dispute.
4 Since this case has taken such a tortuous path of delays, and those delays form the basis for the orders under review here, it is best to summarize the facts by year. 1979-1980 5 On April 16, 1979, ABC filed petitions with the Tax Court for review of the Commissioner's determination with respect to each trust. By April 1, 1980, the parties in the case were ready to prepare for trial. On that date, the Commissioner informally requested the production of several relevant documents. On April 11, 1980, ABC responded with all of the material we have in these matters. Joint Appendix (J.A.) at 26. Apparently, these materials were produced in the California litigation. Dissatisfied with ABC's response, the Commissioner proceeded on more formal lines. On May 16, 1980, the Commissioner filed a motion to produce the requested documents pursuant to I.R.C. Sec. 7456(b) (1982). 1 6 After one continuance requested by ABC, the Tax Court held a hearing on October 16, 1980. At that hearing, the Tax Court judge ordered the appellants to respond to the government's points and authorities submitted in support of the motion to produce. The appellants never filed a written reply because counsel for the appellant, Mr. Harry Margolis, represented that he was making progress obtaining the documents requested by the Commissioner. 1981 7 In response to this development, the Tax Court ordered Mr. Margolis to submit a status report to the court on March 24, 1981. J.A. at 40. On May 6, 1981, the Tax Court ordered Mr. Margolis to: 8 submit a detailed, written report containing the following information: (1) the whereabouts of the records and documents requested by respondent [the Commissioner], (2) a description of what actions petitioner's counsel is presently taking to secure such records and documents, and (3) a specific timetable as to when the Court may expect such records and documents to be produced. This report shall be filed with the Court no later than June 1, 1981. 9 J.A. at 41. 10 On June 2, 1981, Mr. Margolis filed his status report, representing that the original trustee, now located in Panama, had agreed to reconstruct the requested records. The individual apparently able to do so, however, was ill and could not presently perform the task. Since no immediate timetable was discernible, Mr. Margolis moved for an indefinite postponement. Mr. Margolis' report, however, for the first time implied that the original records were no longer available. This was inconsistent with his representation at the October 1980 hearing. The court ordered a postponement for a reasonable length of time to enable petitioners to secure the necessary trust records. J.A. at 42. The court also ordered another status report, due by August 14, 1981. 11 Mr. Margolis filed his next status report on August 17, 1981. In this report, Mr. Margolis informed the Commissioner and the court that the individual in Panama who was to reconstruct the records had been in the hospital for an extended period. Moreover, there were new difficulties in securing the trust records. The trust company had been totally inactive for some time and did not have any employees who had any connection with events prior to 1978. Thus, Mr. Margolis moved for a further extension, which was granted.1982 12 On February 11, 1982, Mr. Margolis moved for leave to withdraw as counsel, substituting Mr. Robert Coffin. On March 22, 1982, the Commissioner moved the Tax Court to set May 21, 1982 as the final date for production of the documents, pursuant to I.R.C. Sec. 7456(b). The Commissioner asserted that a reasonable time had passed since its original motion (one year, ten months). J.A. at 50. 13 On October 4, 1982, the Tax Court held a hearing on this motion. The court ordered ABC to produce the documents by October 18, 1982. Moreover, the court set the case for trial on May 16, 1983. J.A. at 61. 14 On October 20, 1982, two days after expiration of the allotted time to produce the documents, the Commissioner received several documents from Mr. Margolis, who was no longer counsel in the case. The Commissioner found none of these documents responsive, and moved for the sanction of dismissal pursuant to I.R.C. Sec. 7456(b) on November 2, 1982. J.A. at 62. 1983 15 On March 16, 1983, the Tax Court held a hearing on the Commissioner's motion. The court allowed the appellants to move for an evidentiary hearing to respond to the government's allegations. The appellants so moved, representing that they proposed to bring many witnesses to the court to prove that the requested documents were lost, thus excusing noncompliance with the motion to produce. Among the witnesses counsel planned to call (if available) were representatives of ABC from Panama, former officers of ABC (including eight named former employees), accountants (including six named individuals), a former custodian of the records, the plaintiff in the California litigation, attorneys in that litigation, Mr. Margolis, and an expert witness (all named). All told, ABC's attorneys listed nineteen potential witnesses. As this motion indicated, many identifiable individuals could have testified regarding the records the government sought. In light of this representation, the Tax Court postponed trial and set an evidentiary hearing for June 6, 1983. 16 As far as we can tell from the record, that evidentiary hearing did not occur in June of 1983. On June 6, the hearing was continued; on July 18, it was continued again. It was continued yet a third time on October 31, 1983. 2 1984 17 Finally on February 21, 1984, the Commissioner moved to set a date for the hearing. 3 ABC did not object to this, and the hearing was set for May 7, 1984 in Washington. On May 7, four years after the Commissioner filed the original motion to produce, ABC was not prepared to go forward. It is the outcome of that hearing that is before us in this case. 18
19 On April 1, 1984, Mr. Margolis fell ill. Soon thereafter, doctors hospitalized him and placed him under heavy medication. It soon became apparent to ABC's attorneys that he would not be able to appear at the evidentiary hearing. The lawyers evidently deemed this development a serious blow to ABC's strategy, for Mr. Margolis was to testify about the existence of the documents on the basis of his intricate knowledge of the trusts. Mr. Margolis requested Mr. Dunnett, a former associate, to represent the trusts at the hearing. Mr. Dunnett was the fifth attorney to represent ABC in this litigation. Mr. Dunnett interviewed Mr. Margolis in an attempt to prepare, but he soon realized that Mr. Margolis' memory and speech were greatly affected by his medication. When this path became blocked, Mr. Dunnett approached all of the attorneys who had previously represented ABC in an attempt to prepare for the hearing. Soon, it became obvious to all that this too was fruitless. 20 On April 30, one week prior to the evidentiary hearing, Mr. Dunnett, Mr. Denier--counsel for the Commissioner--and the Tax Court judge held a conference call. During that telephone conversation, the judge expressly stated that he would not continue the May 7 hearing. Mr. Dunnett did not state that Mr. Margolis' presence at the hearing was crucial because of Mr. Margolis' legal talents. Rather, Mr. Margolis was to be only a witness in the hearing. The Tax Court judge had been informed of Mr. Margolis' sickness but stated that he would not grant a continuance. The Tax Court did offer to hold the record open beyond the May 7 hearing date in order to add Mr. Margolis' subsequent testimony. But the court made it clear that the hearing would go forward with or without Mr. Margolis. 21 On May 7, Mr. Dunnett officially entered his appearance on behalf of ABC, as did Mr. Harlee, a Washington lawyer. Mr. Harlee appeared alone at the hearing and asked for a continuance. The court denied the motion, stating: 22 I would like the record to show that [sic] the conference call with Mr. Dunnett and Mr. Denier, on April 30th, I made it quite clear that I would not continue this hearing. And that if Mr. Margolis' testimony were needed that I would consider holding the record open after the hearing to take his testimony. At that time no claim was made by Mr. Dunnett that Mr. Margolis's presence was necessary to try the case, except as a witness. He made no claim that Mr. Margolis had to be present at the hearing as an attorney. At that time I made it clear that I expected Mr. Dunnett to provide the Court with an offer of proof as to what evidence Mr. Margolis would testify to or what evidence he would offer. That has not been furnished to the Court. 23 In the file there are statements by Mr. Coffin as to the witnesses he intends to call at this evidentiary hearing. It would appear to me that if Mr. Coffin is representing to the Court that he knows how to proceed and he knows who to call as witnesses that there is no excuse for Mr. Coffin not appearing to present this matter. 24 Mrs. Frahm entered her appearance in this case. She hasn't seen fit to withdraw or explain why she isn't ready to proceed with this hearing. 25 All we have now is another attorney entering his appearance the morning of the hearing asking for a continuance because Counsel isn't prepared. 26 This discovery motion was filed on us four years ago. And this Court and Respondent have patiently waited for this evidence--this information and it has not been forth coming. The Court will deny Petitioners [sic] motion for continuance. 27 Appellant's Br.App. (App.) at 60-61. 28 On June 15, 1984, the Tax Court entered orders granting the Commissioner's November 12, 1982 motion for sanctions, pursuant to Tax Court Rule 104(c). The cases were dismissed. 29 Our jurisdiction to review the Tax Court's order is based on 26 U.S.C. Sec. 7482 (1982).