Opinion ID: 740522
Heading Depth: 2
Heading Rank: 3

Heading: Did the Agents or Attorneys of the Commissioner Commit a

Text: 26 Fraud Upon the Court in Drobny I? 27 The next question we must address is whether the Drobnys have met their heavy burden of establishing a fraud upon the court in connection with Drobny I, and whether the Tax Court abused its discretion in denying the petitioners' motion to vacate. The Drobnys assert that the Commissioner's attorneys and agents engaged in a scheme to prevent [them] from fully and fairly presenting their defense in the 1984 trial and that, taken as a whole, this conduct constituted fraud on the court. In arguing that a fraud upon the court took place, the Drobnys have adopted a buckshot approach ... hop[ing] that a pellet will strike. United States v. Boyles, 57 F.3d 535, 548 (7th Cir.1995). They allege the following improprieties: (1) Assistant District Counsel Dow's ex parte communication with Judge Simpson concerning the scheduling of pending cases (including the Drobny case) for trial, (2) the referral of Drobny to the Criminal Investigation Division as well as IRS Attorney Sabin's mention of this referral in open court in the presence of a potential witness (Samotny), and (3) intimidation of witnesses (including Kamensky and Rosenberg) by the Commissioner's agents and attorneys. After carefully considering these allegations (individually and in combination), the Tax Court concluded that the petitioners had failed to demonstrate that the Commissioner's attorneys or agents were guilty of misrepresentation or concealment or that the Court was in any way deceived as to the facts on which it based its decision. Drobny II, 69 T.C.M. (CCH) at 2607. Our review of the record persuades us that the Tax Court was correct when it found that the petitioners had failed to meet their heavy burden of demonstrating a fraud upon the court, i.e., an unconscionable plan or scheme which was designed to [and did] improperly influence the court in its decision. Kenner, 387 F.2d at 691. Accordingly, we hold that the Tax Court did not abuse its discretion by denying the petitioners' motion to vacate. 28 1. Ex Parte Communication Between Dow (IRS) and Judge Simpson 29 The petitioners contend that one aspect of the alleged fraud upon the court took place even before their trial began, when Assistant District Counsel Harmon Dow contacted Judge Simpson (sometime in 1983) regarding the scheduling of a large number of pending tax shelter cases. As noted above, Judge Simpson was the then Chairman of the Tax Court's Rules Committee, and known to Dow as such. Before telephoning Judge Simpson, Dow obtained clearance from his superior, the District Counsel for the IRS. The petitioners now maintain that Dow initiated this ex parte contact in order to manipulat[e] the judicial selection process [and] ... secure for the trial, the judge of [the IRS's] selection. 16 30 Initially, it should be pointed out that following the conversation with Dow, Judge Simpson did not assign the tax shelter cases to himself. Rather, it was the Chief Judge of the Tax Court who assigned these cases to Judge Simpson, without objection from the Drobnys, 17 for a special session in Chicago, Illinois. Thus, it is at best tenuous for the Drobnys to argue that the conversation between Dow and Simpson affected the selection of a particular trial judge for the Drobnys' case. 31 The contact between Dow and Judge Simpson was indeed ex parte, in the sense that it occurred without either the knowledge or consent of the Drobnys or the other petitioners whose tax shelter cases were then pending. However, as this court has observed on previous occasions, [n]ot every ex parte communication is a procedural defect so substantial and so likely to cause prejudice that it entitles the claimant to an entirely new ... proceeding. Shidaker v. Carlin, 782 F.2d 746, 752 (7th Cir.1986); see also United States v. Napue, 834 F.2d 1311, 1316 (7th Cir.1987) (ex parte proceedings in the criminal context are disfavored, but do not automatically constitute reversible error); American Bar Association, Annotated Model Rules of Professional Conduct 338-39 (3d ed. 1996) (Although ex parte communications may give rise to discipline, they do not necessarily constitute grounds for reversal.). 32 Furthermore, because neither the specifics nor the merits of the individual tax shelter cases were discussed during the conversation, we are of the opinion that the discussion between Dow and Judge Simpson concerning court scheduling was not improper. In our considerate view, this discussion fell far short of rising to the level of an ethical violation, much less a deliberate fraud upon the court. As a general rule, we frown upon any communication between a judge and any party to litigation pending before that judge, when the communication occurs outside the presence of the other party (or parties) to the suit and concerns a substantive matter. However, as a matter of professional ethics, it is well-established that an ex parte communication which does not concern the merits of the case is permissible. Charles W. Wolfram, Modern Legal Ethics 605 (West 1986); DR 7-110(B). The Drobnys allege, without support in the record, that Dow and Judge Simpson not only discussed the merits of the pending tax shelter cases, but that Dow stigmatized the cases by referring to them as cases involving abusive shelters. However, when Dow testified at the Tax Court hearing in 1994 (conducted pursuant to the Drobnys' motion to vacate), it is of interest to note that he specifically and categorically denied that he ever characterized the tax shelter cases as abusive, and maintained under oath that he and the judge didn't talk about the substance of the [individual] cases, except to refer to them as tax shelter cases with similarities that might warrant consolidated or special proceedings of some kind. 18 According to Dow, the discussion was limited to generalities, including the tremendous influx of tax shelter cases as well as Dow's view that the Tax Court ought to look into a different method of dealing with these cases which could not be handled by the ordinary processes of the Tax Court. The record is barren of any evidence, much less testimony, to contradict Dow's version of this conversation. Thus, on the basis of this record, we do not agree with the Drobnys' contention that Dow initiated contact with Judge Simpson in order to influence the selection of a trial judge, and we refuse to hold--on the basis of nothing more than the petitioners' bald and unsupported accusations-that the conversation referred to was part of an overall unconscionable plan or scheme ... to improperly influence the court in its decision. Kenner, 387 F.2d at 691. In short, the innocuous communication between Dow and Judge Simpson concerning an improved procedure for dealing with the Tax Court's overburdened docket cannot serve as a basis for setting aside the decision in Drobny I. 33 The facts demonstrate that Assistant District Counsel Dow, with the approval of the District Counsel, was responding to the demands of an unprecedented caseload and that he contacted Judge Simpson (then Chairman of the Tax Court Rules Committee) to discuss the purely administrative issue of how best to proceed with the large number of pending tax shelter cases. 19 Dow's goal in contacting Judge Simpson was clearly to expedite the administration of justice, which can only be described as a laudable objective, for we all are aware of the old tried yet true cliche that Justice delayed is justice denied. 2. Criminal Investigation Referral 34 As part of their buckshot approach to establishing a fraud upon the court, the petitioners also claim that it was improper for Agent Rosen to refer Sheldon Drobny to the Criminal Investigation Division (part of the Office of the District Director for the Illinois District), for possible violations of 26 U.S.C. § 7201 (tax evasion) and 26 U.S.C. § 7206 (tax fraud/false statements). Although the facts of Drobny's case may well have warranted at least an investigation (if not the filing of formal criminal charges), we see no reason to even discuss the propriety of the criminal referral for a number of reasons, not the least of which is that the referral occurred in early 1983, before the Tax Court had jurisdiction over the Drobny case; thus, the referral in and of itself could not have been part of a fraud upon the court. 35 The Drobnys also assert that it was improper for the Government's counsel to mention the criminal referral in open court when the Drobny case was first called for trial, because Samotny, a potential witness, was present in court. We fail to see how this truthful disclosure to the court, concerning the pendency of a criminal investigation, 20 could be interpreted as being part and parcel of a deliberate scheme or conspiracy to commit a fraud upon the court, as the Drobnys maintain. This matter was properly raised by the Government's lawyer in order that the trial judge might be fully informed as to the status of all related matters and make an informed judgment as to whether or not to delay the proceedings. More importantly, as the Tax Court observed, the Drobnys have failed to establish how, if at all, Samotny's testimony was affected by [these] truthful statements.... Drobny II, 69 T.C.M. at 2606. Indeed, the record reflects that shortly after the criminal investigation was mentioned in Samotny's presence, the District Counsel provided Samotny with a written assurance that he was not the target of any criminal investigation by the IRS (for his role in the aloe vera tax shelters). In light of these steps taken by the IRS to alleviate Samotny's fears of criminal prosecution, we reject the Drobnys' contention that the reference to the criminal investigation in Drobny's case intimidated Samotny and thus constituted a fraud upon the court. 3. Intimidation of Witnesses 36 Perhaps the only claim of the Drobnys that merits more in-depth discussion is their assertion that the Commissioner's agents and attorneys engaged in the intimidation of witnesses as part of a deliberate effort to improperly influence the decision of the Tax Court in Drobny I. When it is proven that an officer of the court (or anyone, for that matter) has attempted to intimidate a witness, such conduct is not only a serious ethical impropriety but is also frequently prosecuted as a criminal violation. 21 However, our inquiry deals with the question of whether the attorneys and agents of the Commissioner, through their interaction with certain witnesses or potential witnesses, attempted to perpetrate a fraud upon the court, i.e., a deliberate fraud that prevented the court from perform[ing] in the usual manner its impartial task of adjudging cases. Kenner, 387 F.2d at 691. 37 The petitioners claim that Marvin Kamensky (whom the Drobnys now portray as a key defense witness) invoked the Fifth Amendment at trial because of alleged threats made by Sabin (counsel for the Commissioner) on the eve of Kamensky's scheduled testimony. The petitioners allege that Sabin told Kamensky that if he did not give testimony favorable to the Commissioner, the IRS could open a case against him and charge him with perjury. According to the Drobnys, Sabin refused to provide any assurances that Kamensky was not the target of a criminal investigation (whether he was in a position to give such assurances, without clearance from his superiors at the IRS, is not included in this record). 38 As an initial matter, we note that Kamensky was not even listed as a defense witness (much less a key witness) in the petitioners' trial memorandum, so that we are skeptical, to say the least, of the Drobnys' argument before this court that Kamensky was the witness most vital to their defense. Kamensky was the Government's witness (Sabin had issued a subpoena duces tecum on April 5, 1984 commanding Kamensky to appear before the Tax Court in the Drobny trial). Although the Drobnys assert that Sabin improperly threatened Kamensky with perjury charges, Sabin (appearing before Judge Simpson in 1984) emphatically denied ever mentioning, much less threatening, possible perjury charges. The evidence of a direct threat by Sabin rests largely on the testimony that Kamensky provided at the 1994 hearing on the motion to vacate, ten years after the alleged threat took place. At this hearing, Kamensky recalled that his telephone conversation with Sabin left him more frightened than ... [he could] ever remember being ... in [his] life. With respect to the specifics of the conversation, however, Kamensky was far less certain. Kamensky qualified and limited his accusation by stating that Sabin mentioned the possibility of a perjury charge, and while Kamensky claimed to remember this long-ago conversation, he stated with some equivocation: this is the way I remember it was meant, not necessarily the way it was said. This tentative testimony from Kamensky, referring to statements allegedly made some ten years earlier, establishes that he personally may have perceived Sabin's comments on that particular date as threatening, but Kamensky's 1994 testimony falls far short of convincingly demonstrating that Sabin engaged in direct threats that would constitute witness intimidation and/or a fraud upon the court. Sabin's alleged comment that he was unable to provide any assurances to Kamensky that he was not the subject of an IRS investigation in connection with the tax shelters was obviously made in reply to some kind of a request from Kamensky. We find nothing improper about Sabin's comment, if in fact it was made at all. Kamensky participated actively in the creation of the tax shelters and, although he may have keenly desired a statement from the IRS that he was not the target of an investigation, the Government was not required to give him such a guarantee (nor is it clear whether Sabin was even in a position to provide such an assurance without first consulting with his superiors). 22 39 Furthermore, we note that on the day Kamensky was scheduled to testify, Judge Simpson was promptly and fully informed concerning the telephone conversation of the night before (which the petitioners now claim was improper, threatening, and part of a fraud upon the court). As noted by the court in Drobny II: 40 During the hearing in 1984, Kamensky's counsel complained that respondent had wrongfully caused Kamensky to come to Court and assert his 5th amendment privilege. Kamensky gave his view of his conversation with Sabin, and Sabin gave his view. Neither the communications nor the basis for the assertion of the privilege were concealed from or misrepresented to petitioners or to the Court. 41 69 T.C.M. at 2606 (emphasis added). Although Judge Simpson excused Kamensky from further testimony on the basis of his invocation of his Fifth Amendment privilege, the judge did not so much as even hint that Sabin had engaged in any improper conduct, much less make a finding that Sabin's actions amounted to a fraud upon the court, i.e., that they had prevented the court from perform[ing] in the usual manner its impartial task of adjudging cases. Kenner, 387 F.2d at 691. 42 Was Sabin's conduct vis a vis Kamensky ethically proper? We state with certainty that there is nothing improper about a Government attorney speaking with a Government witness prior to trial. Discussion between an attorney and his witness is a proper pre-trial procedure. If Sabin merely cautioned Kamensky that the Government wanted him to tell the truth and nothing but the truth, while reminding him of the seriousness of giving testimony under oath and committing perjury, that would also be proper and by no means unusual. Sabin denies having made any threatening comments, as alleged by the Drobnys. The trial judge did not make any factual findings on the question of whether Sabin engaged in such threats, and it is well beyond our role as an appellate court to do so. See, e.g., United States v. Wesson, 33 F.3d 788, 792 (7th Cir.1994) (We will not reweigh the evidence or make credibility determinations; as an appellate court viewing the trial record, we are incapable of assuming the role of the factfinder.). In this regard, it is important to remember that while we appellate judges are confined to the cold pages of a transcript and thus cannot assess witness credibility, the judge or jury has the opportunity to observe the verbal and non-verbal behavior of the witnesses focusing on the subject's reactions and responses to interrogatories, their facial expressions, attitudes, tone of voice, eye contact, posture and body movements. United States v. Lakich, 23 F.3d 1203, 1210-11 (7th Cir.1994). 43 Fortunately, we need not resolve the factual question of what transpired in the conversation between Sabin and Kamensky in order to determine whether Sabin's conduct contributed to an alleged fraud upon the court. That is because, even if we were to assume that Sabin did engage in improper threats of the kind alleged by the Drobnys, his conduct did not affect the outcome of the decision in Drobny I and for this reason it did not rise to the level of a fraud upon the court as defined in this circuit. The Drobnys argue that Kamensky's testimony, if proffered, would have helped their case. According to the petitioners, Kamensky-mysteriously unlisted in their trial memorandum and only now described as a key witness--would have corroborated Sheldon Drobny's testimony that he relied upon Kamensky for guidance regarding the aloe vera tax shelters, and thus did not know that the deductions were improper. If Kamensky (figuratively speaking, Drobny's partner in crime) had given testimony favorable to Drobny, we think it unlikely that this testimony would have persuaded Judge Simpson of Drobny's innocence in light of (1) Drobny's sophistication and expertise in the area of tax shelters, (2) his substantial involvement in the promotion of the aloe vera programs, and (3) the fact that Drobny (not Kamensky) was the one who actually prepared the Drobnys' joint 1979 tax return. We are certainly doubtful that the testimony of an associate who was directly involved in the creation and promotion of the sham tax shelters would have made any difference to the judge's ruling in the case. In short, we agree with the Tax Court that [a]dding the subjective opinions of other interested persons in the litigation [i.e., Kamensky] would have not changed the objective facts upon which the [1986] opinion [was] based. Drobny II, 69 T.C.M. at 2606. 44 The Drobnys also assert that prior to the trial, IRS Agent Feinglass frightened [Benjamin] Rosenberg into not testifying by telling him that the IRS would only agree to settle his case if he agreed (1) to testify that the aloe vera tax shelters were shams, and (2) to fire his attorney, Randall Goulding. 23 Although the Drobnys now describe Rosenberg as another of their key witnesses (like Kamensky) we find it strange that he was not even listed as a defense witness in the petitioners' trial memorandum and that the defense never even attempted to subpoena him to testify. Indeed, Steven Nagler, the petitioners' attorney in the 1984 trial, has stated that the defense didn't consider [Rosenberg] crucial to the case. The allegation that Rosenberg was somehow intimidated by Feinglass does not rest on direct testimony in the record, but upon Sheldon Drobny's hearsay testimony at the 1994 hearing concerning conversations he had with Rosenberg in approximately 1992 or 1993. Rosenberg's own testimony at the 1994 hearing was that [h]e did not recall telling Drobny that he declined to testify because of implied threats by Feinglass. Drobny II, 69 T.C.M. at 2605. Furthermore, if we are to credit the 1994 testimony of petitioner Sheldon Drobny, it would appear that Rosenberg told Drobny he was most fearful of official proceedings of any and all kinds, for he was a survivor of the Holocaust. Thus, Agent Feinglass' alleged comments were not the only (and perhaps not even the most important) plausible explanation for Rosenberg's unwillingness to testify. 45 In order to establish that the Government's alleged intimidation of Rosenberg amounted to a fraud upon the court, the Drobnys must demonstrate how the loss of Rosenberg's testimony (which, we repeat, they never deemed crucial to begin with) affected the outcome of their case. However, the petitioners have once again failed to explain how the testimony of this additional, purportedly key witness would have helped their case. Based upon all of the facts and circumstances concerning the prospective witness Rosenberg, we are of the opinion that the Tax Court did not err when it found that Feinglass' alleged intimidation of Rosenberg fell short of being a fraud upon the court.To summarize, we agree with the Tax Court's conclusions as to each of the alleged improprieties discussed above and hold that none of them, taken alone or considered in combination, amounted to a fraud upon the court (as that term has been defined by this court and others). Thus, the Tax Court did not abuse its discretion when it denied the Drobnys' motion to vacate Drobny I. We are mindful of the extreme difficulty of reconstructing events that occurred during a trial ten years ago, and for this reason we give deference to the Drobny II court's findings. We also note that the almost eight-year delay in filing a motion to vacate is solely attributable to the petitioners. 24 Much of the allegedly improper conduct by the Commissioner's agents and attorneys either occurred in open court (the reference to the criminal referral at the commencement of the trial in 1984) or was well known to the Drobnys at the time of the trial (the alleged intimidation of Kamensky). Yet the Drobnys, for reasons unexplained in this record, failed to file their motion to vacate until almost eight years after Drobny I became final, and they have offered no explanation for this extended delay. The Tax Court in Drobny II observed that [b]ecause of the passage of time, each of the witnesses at the [1994] hearing [on the motion to vacate] ... indicated some lack of recollection of the sequence of events and specific conversations that petitioner alleged to have occurred. 69 T.C.M. at 2604. 25