Opinion ID: 4537743
Heading Depth: 2
Heading Rank: 4

Heading: The Claims Court’s Second Determination

Text: As noted above, the Claims Court initially ruled against the Adkinses and we vacated that determination on appeal. Adkins I, 856 F.3d at 916. On remand, the parties filed a joint status report indicating that no further testimony or evidence was required and proposed a schedule for supplemental briefing. Adkins II, 140 Fed. Cl. at 311. On October 26, 2018, the Claims Court issued an opinion, again concluding that the Adkinses are not entitled to a theft loss deduction for the 2004 tax year. Id. at 300. The Claims Court assessed the evidence to determine whether the Adkinses had any reasonable probability of recovery in 2004. Two related legal principles guided this inquiry. First, the Claims Court concluded that, if a reasonable prospect of recovery was “unknowable” as of the year in which the loss was claimed, the taxpayer can never bear her burden of establishing that there was no reasonable prospect of recovery in that tax year. Second, the Claims Court assumed that, for a taxpayer to establish the absence of a reasonable prospect of recovery, she must affirmatively establish, for each potential avenue of recovery Case: 19-1356 Document: 37 Page: 14 Filed: 05/29/2020 14 ADKINS v. UNITED STATES placed in issue, that it presented no reasonable probability of recovering any amount of her losses, no matter how difficult the avenue nor how small the potential recovery. See Adkins v. United States, No. 19-1356, Oral Arg. at 26:18– 27:25. It is through these lenses that the Claims Court assessed the record before it. The Claims Court said there were three ways the Ad- kinses, “or any reasonable taxpayer with plaintiffs’ knowledge,” could have attempted to recover their losses: (1) the arbitration claim they filed against Donald & Co. and Messrs. Stetson, Volman, and Ingrassia in 2002; (2) possible claims against Freeman, Otto Kozak, and Robert Kozak; and (3) restitution in conjunction with the criminal proceedings initiated in 2004 against Donald & Co.’s principals and employees regarding the Elec and Classica stock fraud. Id. at 316. With respect to the Adkinses’ arbitration claim, the Claims Court explained that there was no evidence in the record that the respondents’ failure to fully respond to discovery requests foreclosed the Adkinses from proceeding with their claim and obtaining an award. Id. at 317. “In addition, there [was] no evidence in the record that [the Adkinses] sought to determine whether Donald & Co. or Messrs. Stetson, Volman, and Ingrassia had any assets that could be used to satisfy an arbitration award.” Id. And, although a U.S. Attorney had advised Mr. Adkins that any arbitration proceedings would be stayed pending resolution of the criminal proceedings, the Claims Court pointed out that there was no evidence of a formal request to stay. Id. The Claims Court rejected the Adkinses’ argument that, once Volman and Ingrassia were indicted for securities fraud and money laundering, it was clear that the government would seize all of the criminal defendants’ assets and any relevant documentation, which would foreclose future recovery from them. Id. at 317–18. The Claims Court Case: 19-1356 Document: 37 Page: 15 Filed: 05/29/2020 ADKINS v. UNITED STATES 15 concluded that knowing of an intent to plead guilty is not the same as knowing the contents of the plea agreement, which remained under seal until August 2005. Id. at 318. The court further suggested that the Adkinses could have pursued recovery through Odyssey Capital LLC, the holding company for Donald & Co.’s house stocks, despite the indictments. Id. (“Donald & Co. principals executed trades through Odyssey Capital LLC; Donald & Co. accumulated profits in bank accounts owed by Odyssey Capital LLC.”). With respect to the Adkinses’ potential claims against the Kozaks and Freeman, the Claims Court concluded that a reasonable taxpayer could have concluded that he had no prospect of recovery against the Kozaks but could not have come to that same conclusion with respect to Freeman. Id. at 319. The court noted that Freeman was a principal of Donald & Co., served as an account representative for several of the plaintiffs’ accounts for at least one year, and was not charged with any crimes until August 2005. Id. Accordingly, the court concluded that the Adkinses’ decision to not name Freeman as a respondent in the arbitration proceedings was inexcusable. Id. “A reasonable taxpayer in plaintiffs’ position would have pursued a claim against Freeman in 2002 or thereafter[] and would not have had any reason to suspect in 2004 that he would not be able to recover at least some of his losses through that claim.” Id. at 319–20. Finally, the Claims Court faulted the Adkinses for failing to pursue restitution awards through the criminal proceedings. Based on the record, the Claims Court determined that the Adkinses did not know in 2004 the charges to which the criminal defendants would be pleading guilty or any details regarding the expected restitution awards relating to the Elec and Classica stock frauds. Id. at 320. The court then found that, with the exception of the Kozaks, the Adkinses did not know whether the criminal defendants had the wherewithal to satisfy their restitution obligations. Id. at 321. The court found insufficient Case: 19-1356 Document: 37 Page: 16 Filed: 05/29/2020 16 ADKINS v. UNITED STATES evidence that the Adkinses attempted to ascertain the financial condition of any of the criminal defendants, or that the government seized any of the criminal defendants’ assets prior to September 2005 “such that the assets would be unavailable for restitution.” Id. Based on these three possible avenues of recovery, the Claims Court concluded that the Adkinses failed to meet their burden of proving that they were entitled to claim a theft loss deduction because “a reasonable taxpayer in plaintiffs’ position could not have known, in 2004, whether he had a reasonable prospect of recovering at least some of his losses.” Id. at 316 (emphasis added). See also id. at 318 (“A reasonable taxpayer . . . could not have known in 2004 whether he had a reasonable prospect of recovery.”); id. at 320 (“[The Adkinses’] reasonable prospect of recovery from Mr. Freeman was simply unknowable in 2004.”); id. at 321 (“[P]laintiffs’ reasonable prospect of recovering their losses was simply unknowable by the end of 2004.”). The Adkinses timely appealed the Claims Court’s decision.