Court Opinion

ID: 3016825
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:16:09.564395+00
Date Added: 2024-06-11T11:39:57.016741
License: Public Domain

___________

                                   No. 95-2938
                                   ___________

Dennis W. Harker, Mary Harker,          *
                                        *
            Appellants,                 *
                                        * Appeal from the
     v.                                 * United States Tax Court.
                                        *
Commissioner of Internal                *
Revenue,                                *
                                        *
            Appellee.                   *
                                   ___________

                     Submitted:    February 12, 1996

                          Filed:   May 3, 1996
                                   ___________

Before BOWMAN, BEAM, and LOKEN, Circuit Judges.
                               ___________

BOWMAN, Circuit Judge.

     Dennis and Mary Harker appeal the decision of the Tax Court finding
them liable for tax deficiencies and fraud penalties.         For reversal, they
argue that the Tax Court abused its discretion when it denied their motion
to disqualify Jeffrey A. Schlei, an attorney with the Office of District
Counsel (ODC) for the Iowa District Office of the Internal Revenue Service
(IRS), and the entire legal staff of the ODC from representing the
Commissioner in the Tax Court proceedings.       We affirm.

     In July 1990, Dennis Harker pled guilty to tax evasion for the
taxable year 1987, and Mary Harker pled guilty to tax evasion for the
taxable year 1985.      The Harkers were represented in these criminal tax
proceedings by Mark Godwin of Isaacson & Clarke, a Des Moines law firm of
four attorneys.   Schlei was an associate with this law firm between 1987
and 1991.   He left the law firm and joined the ODC in 1991.      In April 1992,
following the resolution of
their criminal cases, the Harkers received a notice of deficiency from the
Commissioner of the IRS.    The Commissioner's notice stated that the Harkers
were liable for various tax deficiencies and civil fraud penalties for
taxable years 1985, 1986, and 1987.

       In July 1992, the Harkers retained new counsel and filed a petition
for a redetermination of deficiency in the Tax Court.        In August 1993,
Schlei was assigned to assist IRS attorney Mary Ann Waters in representing
the Commissioner in the Harkers' deficiency trial before the Tax Court.
In October 1993, just two weeks before trial, the Harkers, asserting they
only recently had discovered that Schlei had been an associate with the law
firm   that   represented   them   during   the   now-resolved   criminal   tax
proceedings, filed a motion to disqualify Schlei and the ODC.      The Harkers
argued that Schlei's former association with the law firm disqualified him
from now representing the Commissioner against the Harkers in the civil
deficiency trial.   The Harkers also argued that Schlei's former association
with the law firm required disqualification of the entire ODC.

       The Tax Court denied the Harkers' motion on the basis of Model Rule
of Professional Conduct 1.11(c)(1) (1992), which provides that a government
attorney shall not participate in a matter in which the attorney had
personal and substantial involvement while in private practice.      The court
found that Schlei had no personal or substantial involvement in the
Harkers' legal matters while at the law firm, had not seen or reviewed
their files, and was not privy to their verbal or written communications.
Having determined there was no ground to disqualify Schlei, the court also
rejected the Harkers' request to disqualify the entire ODC.         The court
noted that motions to disqualify are subject to "strict judicial scrutiny"
because of the cost and inconvenience they may impose on the judicial
system and the party whose attorney is disqualified.      The court cited the
fact that the Harkers filed their motion just two weeks before trial as
evidence that they had employed the

                                     -2-
motion primarily as a delay tactic.    At the conclusion of the trial, the
Tax Court sustained the Commissioner's determination of tax deficiencies
and fraud penalties against the Harkers.

     On appeal, the Harkers do not argue the merits of the Tax Court's
ruling against them on the question of their liability for tax deficiencies
and fraud penalties.   Instead, they argue only that reversal is required
because the Tax Court abused its discretion in denying their motion to
disqualify Schlei and the entire staff of the ODC.   The Harkers also do not
argue that the Tax Court misapplied Model Rule of Professional Conduct
1.11(c)(1) to the facts of their case, nor do they challenge the court's
finding that Schlei was not personally and substantially involved in the
Harkers' criminal tax cases while at the law firm.         We note that the
Harkers did not present the court with any evidence to counter Schlei's
affidavit attesting to his lack of personal involvement in the Harkers'
criminal tax cases.    Rather, the Harkers contend their case should be
reversed and remanded because the Tax Court should have applied the Model
Code of Professional Responsibility and the decisions of this Court
interpreting the Model Code.     We reject these arguments.

     The decision to grant or deny a motion to disqualify an attorney
rests in the discretion of the trial court, and we will reverse this
determination only upon a showing of abuse of that discretion.       A.J. ex
rel. L.B. v. Kierst, 56 F.3d 849, 859 (8th Cir. 1995).        Because of the
potential for abuse by opposing counsel, "disqualification motions should
be subjected to "'particularly strict judicial scrutiny.'"     Optyl Eyewear
Fashion Int'l Corp. v. Style Cos., 760 F.2d 1045, 1050 (9th Cir. 1985)
(quoting Rice v. Baron, 456 F. Supp. 1361, 1370 (S.D.N.Y. 1978)).       When
reviewing a decision of a district court on a motion for disqualification
of an attorney, we apply the same rules governing the professional conduct
of attorneys that the district court has adopted.    See Blair v. Armontrout,
916 F.2d 1310, 1333 (8th Cir.)

                                    -3-
(reviewing lower court's decision granting motion to disqualify, this Court
applied Model Rules instead of Model Code because Western District of
Missouri, where underlying habeas corpus proceeding was brought, had
adopted Missouri Rules that were consistent with Model Rules), cert.
denied, 502 U.S. 825 (1990).      We do not discern any reason for not
extending the same approach to our review of rulings by the Tax Court on
motions to disqualify.     The Tax Court has adopted the Model Rules of
Professional Conduct to govern the conduct of attorneys who practice before
it.1   Tax Court Rule 201(a), reprinted in 26 U.S.C.A. foll. § 7453 (West
1986); see also Duffey v. Commissioner, 91 T.C. 81, 82 (1988).

       In support of their argument for disqualification, the Harkers rely
on Arkansas v. Dean Foods Products. Co., 605 F.2d 380 (8th Cir. 1979), and
Fred Weber, Inc. v. Shell Oil Co., 566 F.2d 602 (8th Cir. 1977), cert.
denied, 436 U.S. 905 (1978).2     Those cases arose in the United States
District Court for the Eastern District of Arkansas and the United States
District Court for the Eastern District of Missouri, respectively, and both
district courts applied the Model Code.     The Harkers' reliance on Dean
Foods and Fred Weber therefore is misplaced because those cases interpret
the Model Code, which, as we already have pointed out, does not apply in
the Tax Court, for that court has adopted the Model Rules.   In Dean Foods
and Fred Weber, we concluded that, in order to prevent

       1
      The Model Rules of Professional Conduct (1992), promulgated
by the American Bar Association in August 1983, have been adopted
by the United States Tax Court, as well as approximately thirty-six
states and the District of Columbia. 2 G. Hazard, Jr. & W. Hodes,
The Law of Lawyering, A Handbook on The Model Rules of Professional
Conduct § AP4:101 (2d ed. 1992 & Supp. 1994). A minority of states
have adopted the older Model Code of Professional Responsibility.
       2
      Both of the cases relied upon by the Harkers were overruled
in part by In re Multi-Piece Rim Products Liability Litigation, 612
F.2d 377 (8th Cir. 1980) (en banc) (overruling portion of cases
that dealt with appealability of disqualification orders). The
overruled portions of those decisions, however, are not relevant to
this appeal.

                                    -4-
the "appearance of impropriety," a lawyer is presumed under the Model Code
to have knowledge of all confidential information relating to clients of
the lawyer's firm and thus is disqualified from taking a position adverse
to the former client in a substantially related matter.              Dean Foods, 605
F.2d at 385-86; Fred Weber, 566 F.2d at 608-09.         Because the Tax Court has
adopted    the Model Rules, which do not incorporate the Model Code's
appearance-of-impropriety standard, those cases interpreting the Model Code
do not govern our review of the Tax Court's decision.

     Additionally, the Harkers argue that the ethics rules adopted by the
United States District Court for the Southern District of Iowa, i.e., the
Model Code, are relevant here because that federal district court is an
alternative forum in which the Harkers could have paid their deficiency and
sued for a refund.        The Harkers further argue that, because Schlei is a
member of the Iowa bar, his conduct should be governed by Iowa ethics rules
in matters before the Tax Court.          These arguments are entirely without
merit.     The fact that Schlei is a member of the Iowa bar and that the
Harkers could have litigated this case in another forum does not provide
any basis for requiring the Tax Court to apply rules of professional
conduct other than those that the Tax Court has chosen to adopt.                   The
Harkers selected the Tax Court as the forum in which to litigate this
matter and therefore necessarily assented to be governed by the rules of
that forum.

     We conclude the Tax Court did not abuse its discretion in denying the
Harkers'    motion   to    disqualify    Schlei.      Given   that   conclusion,    it
necessarily    follows      that   the     Harkers'     argument     that   Schlei's
disqualification should be imputed to the entire legal

                                         -5-
staff of the ODC also fails.   The judgment of the Tax Court is affirmed.3

     A true copy.

           Attest:

                CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.

      3
       Our decision does not mean that we believe the government
used its best judgment in assigning Schlei to this case.       The
government knew, prior to assigning Schlei to represent the
Commissioner in the Harkers' tax-deficiency trial, that Schlei had
worked as an associate in a four-person law firm that previously
had represented the Harkers in criminal tax proceedings.      Even
though Schlei had no personal or substantial involvement in the
Harkers' criminal cases while at the law firm, surely the
government had other attorneys from whom to choose in assigning
counsel to the Harkers' civil case. Had Schlei not been assigned
to the deficiency trial, this wholly unnecessary controversy about
disqualification would have been avoided.

                                   -6-