Opinion ID: 2828819
Heading Depth: 3
Heading Rank: 1

Heading: Whether res judicata applies

Text: 10 Case: 12-20804 Document: 00513161978 Page: 11 Date Filed: 08/19/2015 No. 12-20804 We must find four requirements satisfied in order for res judicata to apply: “(1) the parties must be identical in both suits; (2) the prior judgment must have been rendered by a court of competent jurisdiction; (3) there must be a final judgment on the merits; and (4) the same cause of action must be involved in both cases.” Meza v. Gen. Battery Corp., 908 F.2d 1262, 1265 (5th Cir. 1990) (citations omitted). Stevens claims that several of those requirements are not satisfied, and so the Stipulation and 2008 Tax Court decisions do not bind her. First, she argues that the parties are not identical. While acknowledging the exception to the identical party requirement if the non-party is a successor in interest to the party’s interest in the property, see Meza, 908 F.2d at 1266–67, she claims this exception cannot apply here because whether she is a successor in interest to J. Howard (i.e., whether she was a donee) is the same issue she is contesting. Stevens also claims that there was not a final judgment on the merits, because “an agreed judgment does not have the same effect as a contested judgment.” (citing Arizona v. California, 530 U.S. 392, 414–16 (2000)). The Government, however, responds that our decision in United States v. Davenport, 484 F.3d 321 (5th Cir. 2007) controls. Because “[a] prior decision determining the liability of the donor binds the donee,” Davenport, 484 F.3d at 327, the Government claims that the Stipulation and 2008 Tax Court decisions bind Stevens. We agree with Stevens that, in order for Davenport (and res judicata) to apply, we must first determine whether Stevens is a donee. In Davenport, this Court considered whether res judicata bound a transferee, Gordon Davenport, from whom the Government sought to recover unpaid gift tax (under § 6324(b)). Id. at 322, 324. Before her death, Birnie Davenport transferred stock to her niece and nephews, including Gordon. Id. at 323. After Birnie’s death, the IRS audited her estate tax return and found that Birnie had undervalued the stock 11 Case: 12-20804 Document: 00513161978 Page: 12 Date Filed: 08/19/2015 No. 12-20804 she transferred, creating a large gift tax deficiency. Id. at 324. Birnie’s estate challenged the alleged deficiency in tax court. Id. The tax court found that Birnie had made inter vivos gifts to Gordon and her other nephew and niece, and the court determined the value of the gift. Id. Her estate never paid the gift tax, and the Government then sought to collect the unpaid gift tax from Gordon pursuant to § 6324(b). Id. at 324–25 (explaining that liability under § 6324(b) is several). The district court agreed with Gordon that res judicata applied to the tax court’s finding that he was a donee but did not preclude him from litigating the value of the gift or the amount of his liability. Id. at 325. This Court reversed, holding that res judicata applied and that Gordon could not contest his status as a donee, the value of his gift, or the amount of his liability. Id. at 329. The Court noted that “[a]s transferee, Gordon Davenport was in privity with a party to the tax court proceeding, Birnie Davenport’s estate, the transferor.” Id. at 326 (citation omitted). “A prior decision determining the liability of the donor binds the donee, . . . [a]nd the tax court, a court of competent jurisdiction, rendered final judgment on the merits.” Id. at 327 (citation omitted). The “same . . . transactions and factual events” were present in both cases; both cases concerned Birnie’s gift. Id. The Court also observed that its decision was consistent with the Eighth and Eleventh Circuits’ decisions in the Baptiste cases. Id. at 327–28. In each Baptiste case, the court reasoned that the estate’s liability, which the tax court had already calculated, determined the donee’s liability under § 6324(b) and held that the donees could not challenge the amount of the gift. Id. at 327. Despite our holding in Davenport, res judicata does not attach until we determine that Stevens is, in fact, a donee. “Once a court determines the tax liability of the transferor, ‘the decision is res judicata of the liability with regard to the transferee for the same tax if transferee status can be established.’” Id. at 328 (emphasis added) (quoting 14 Edward J. Smith, 12 Case: 12-20804 Document: 00513161978 Page: 13 Date Filed: 08/19/2015 No. 12-20804 Mertens Law of Federal Income Taxation § 53:31 (2004)). Thus, determining transferee (or donee) status is the first step. Here, Stevens challenges her status as a donee, and so the requirements for res judicata are not satisfied until we determine that she was a donee. If we determine that Stevens is a donee, see infra Part IV(B)(2), then Davenport is clear that Stevens is bound by the tax court’s determination of the value of the gift. See id. (explaining that determining the value of the stock was “a fundamental part of calculating the tax due” and that “[t]he tax court’s determinations of the value of the stock and the tax due are not separable”). Stevens’s argument that there was no final judgment on the merits because it was an agreed, not a contested, judgment lack merit. Davenport clearly states that “[t]he final judgment element does not require contested litigation.” Id. at 327 n.10 (citing United States v. Shanbaum, 10 F.3d 305, 313 (5th Cir. 1994) and In re W. Tex. Mktg. Corp., 12 F.3d 497, 500–01 (5th Cir. 1994)). Thus, res judicata does not bar Stevens from arguing that she is not a donee. But, if we determine that Stevens is a donee, then res judicata applies and bars her from relitigating the value of the gift she received.