Court Opinion

ID: 4705502
Source: CourtListenerOpinion
Date Created: 2021-07-22 15:01:13.918735+00
Date Added: 2024-06-11T08:06:24.540018
License: Public Domain

Case: 20-1052   Document: 58     Page: 1   Filed: 07/22/2021

        NOTE: This disposition is nonprecedential.

   United States Court of Appeals
       for the Federal Circuit
                 ______________________

                UNION TELECOM, LLC,
                   Plaintiff-Appellant

                            v.

                   UNITED STATES,
                   Defendant-Appellee
                 ______________________

                       2020-1052
                 ______________________

     Appeal from the United States Court of Federal Claims
 in No. 1:16-cv-01409-TCW, Judge Thomas C. Wheeler.
                  ______________________

                 Decided: July 22, 2021
                 ______________________

    ANDREW PAUL KAWEL, Kawel PLLC, Miami, FL, ar-
 gued for plaintiff-appellant.

     JULIE CIAMPORCERO AVETTA, Tax Division, United
 States Department of Justice, Washington, DC, argued for
 defendant-appellee.   Also represented by DAVID A.
 HUBBERT, JOAN I. OPPENHEIMER.
                 ______________________

  Before MOORE, Chief Judge, REYNA and HUGHES, Circuit
                        Judges.
Case: 20-1052    Document: 58      Page: 2    Filed: 07/22/2021

 2                                  UNION TELECOM, LLC   v. US

 HUGHES, Circuit Judge.
     Union Telecom, LLC, sued the IRS for a refund of taxes
 on prepaid phonecards. After the testimony portion of a
 bench trial, a new judge was assigned to the case at the
 trial court, but the judge denied the plaintiff’s request to
 recall witnesses under Rule 63. The trial court then denied
 the plaintiff’s claim for a refund. Union Telecom appeals
 the denial of its request to recall witnesses. We hold that
 the trial court erred in its decision but that the error was
 harmless. Accordingly, we affirm.
                               I
     The IRS assesses taxes on toll telephone services.
 26 U.S.C. § 4251(a)(1), (b)(1)(B). Section 4252(b)(1) defines
 such services as “telephonic quality communication[s] for
 which (A) there is a toll charge which varies in amount with
 the distance and elapsed transmission time of each individ-
 ual communication and (B) the charge is paid within the
 United States.” For prepaid phonecards, the tax is paid by
 the first non-carrier to purchase cards from a carrier.
 26 U.S.C. § 4251(d)(1)(B) (assessing the tax “when the card
 is transferred by any telecommunications carrier to any
 person who is not a carrier”); 26 C.F.R. § 49.4251-4(a).
     Until 2006, the IRS interpreted the “distance” and
 “time” variables of § 4252(b)(1) in the disjunctive. Union
 Telecom, LLC v. United States, 144 Fed. Cl. 477, 480 (2019)
 (Decision). Therefore, the IRS interpreted the statute to
 cover sales of prepaid phonecards that billed by the amount
 of elapsed time, even if charges did not vary by distance.
 Id. However, in 2006, the IRS altered its interpretation,
 recognizing that, to be subject to the tax, providers must
 vary charges by both time and distance. Id. This change
 entitled those that had paid such tax to a refund. Id.
     Union Telecom purchased prepaid phonecards from a
 group of corporate entities arranged in a structure de-
 signed to avoid the tax. IDT Corporation (IDT) is a
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 UNION TELECOM, LLC   v. US                                  3

 telecommunications carrier that distributes prepaid
 phonecards. Id. at 481. IDT formed a subsidiary carrier in
 Puerto Rico (IDT PR) and transferred the cards to that sub-
 sidiary. Id. at 481–82. This transaction was not taxable be-
 cause it was between carriers. IDT PR then sold the cards
 to Union Telecard Alliance (UTA), a non-carrier partially
 owned subsidiary of IDT. Id. at 482. This transaction was
 not taxable because it was outside of the United States. Id.
 UTA then sold these cards to Union Telecom, a non-carrier.
 Id. This transaction was not taxable because it was be-
 tween non-carriers. Union Telecom then sold these cards to
 consumers. Id. The IRS was aware of this arrangement and
 raised no issues. Id. at 483.
     After the IRS altered its interpretation regarding the
 tax on prepaid telephone cards, Union Telecom sued the
 IRS for a refund in the United States Court of Federal
 Claims. Judge Susan Braden presided over a three-day
 trial. J.A. 205–346. All testimony regarding the relevant
 transactions indicated that none of the entities in the chain
 remitted the tax to the IRS or were required to do so. Deci-
 sion, 144 Fed. Cl. at 483–85. For example, Joseph Farber,
 IDT’s CFO of U.S. retail operations, testified that “there
 was no excise tax paid.” J.A. 324.
      Nevertheless, the CEO of Union Telecom, Peter Shah,
 testified that Union Telecom was entitled to a refund. Shah
 lacked personal knowledge regarding whether IDT paid
 the tax. J.A. 244 (“I don’t talk to anybody in IDT. I have no
 idea.”). Indeed, UTA had informed Shah in a letter that
 “IDT did not pay any federal excise taxes on the . . . prepaid
 calling cards.” J.A. 485. Shah contended, however, that
 IDT included the tax in the price it charged UTA, which
 was then passed on to Union Telecom, regardless of
 whether the government ever received those payments.
 J.A. 245, 250. The invoices for the cards Union Telecom
 purchased did not include a line item for the tax, but Shah
 testified that in the phone card industry, carriers do not
 itemize taxes. J.A. 245.
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 4                                  UNION TELECOM, LLC   v. US

      Before Judge Braden issued her ruling, the case was
 transferred to Judge Thomas Wheeler. Decision, 144 Fed.
 Cl. at 483. Union Telecom then requested that Judge
 Wheeler recall witnesses Farber and Shah under Rule 63
 of the Court of Federal Claims. The trial court denied the
 motion. J.A. 1–2. The trial court then issued a final judg-
 ment that Union Telecom was not entitled to a refund. De-
 cision, 144 Fed. Cl. at 489. The trial court’s opinion gave
 two alternative grounds for its decision. First, no entity in
 the chain paid or was required to pay the tax, so no refund
 was warranted. See id. at 484 (“Plaintiff certainly pur-
 chased the cards from UTA, but the Government’s swath of
 uncontroverted evidence shows that IDT never included
 [the tax] in those cards’ price during the relevant period.”)
 (citation omitted). Second, even if the tax had been paid,
 Union Telecom was not the first non-carrier transferee and
 therefore lacked standing. Id. at 486.
     Union Telecom appeals, arguing that the trial court
 erred by not recalling the witnesses. Although we agree
 that the trial court’s analysis of Rule 63 was erroneous, we
 hold that the error was harmless.
                              II
      Rule 63 applies when a new judge takes over a hearing
 or trial at the Court of Federal Claims. In relevant part,
 the rule reads: “In a hearing or trial, the successor judge
 must, at a party’s request, recall any witness whose testi-
 mony is material and disputed and who is available to tes-
 tify again without undue burden.” The phrasing of the rule
 is mandatory (“must”), and there are only three listed ex-
 ceptions: (1) the testimony is immaterial, (2) the testimony
 is undisputed, or (3) there would be an undue burden on
 the witness. If a party makes a request under Rule 63, the
 trial court must find one of these exceptions in order to re-
 fuse to recall witnesses.
     Here, the trial court did not mention any of the three
 exceptions in its opinion. Instead, the trial court stated:
Case: 20-1052    Document: 58      Page: 5    Filed: 07/22/2021

 UNION TELECOM, LLC   v. US                                 5

     The Court is familiar with the record and has ex-
     tensively reviewed the audio recordings of live tes-
     timony given during the three-day trial and the
     accompanying transcripts. The limited amount of
     testimony coupled with the Court’s access to these
     audio recordings well-positions the Court to render
     a decision on any purported credibility determina-
     tions.
 J.A. 1–2.
      Rule 63 does not grant an exception for when the court
 is familiar with the record. Because the trial court must
 find one of the three exceptions in order to refuse to recall
 witnesses, we hold that the trial court erred in its reason-
 ing.
     But the trial court’s error was harmless. None of the
 testimony that the plaintiff requested be reheard could
 have altered the outcome of the case. One of the reasons for
 the trial court’s judgment was that the chain of entities in
 this case was designed to avoid the tax on prepaid phone-
 cards, and with no entity responsible to pay the tax, Union
 Telecom was not entitled to a refund. None of the witnesses
 that Union Telecom seeks to recall have personal
 knowledge to the contrary.
     Shah, as the CEO of Union Telecom, has no personal
 knowledge regarding the tax liability of the entities earlier
 in the corporate structure. Union Telecom argues that his
 testimony could still alter the outcome because Shah has
 personal knowledge that phone card companies do not sep-
 arately list taxes on invoices. But, even if fully credited,
 this generalized knowledge of the industry could not alter
 the outcome. General practices regarding owed taxes are
 irrelevant because there is undisputed testimony that IDT
 designed a corporate structure to avoid owing the tax and
 that no party paid the tax. We therefore agree with the trial
 court that “[g]iven the lack of . . . first-hand knowledge,
 Shah’s assessment is not probative. In short, Union
Case: 20-1052    Document: 58       Page: 6   Filed: 07/22/2021

 6                                   UNION TELECOM, LLC   v. US

 Telecom ignores the reality of the situation here—IDT
 structured its business to avoid paying the [tax].” Decision,
 144 Fed. Cl. at 484.
     Farber’s testimony also could not have altered the hold-
 ing. He testified that IDT did not pay the tax and that it
 structured its business as to not owe the tax. Thus, his tes-
 timony supported the government on the key issue. How-
 ever, even if his testimony were fully discredited, it was
 only one piece of evidence in a “swath of uncontroverted
 evidence show[ing] that IDT never included [the tax] in
 [the] cards’ price during the relevant period.” Id.
                              III
     We have considered Appellant’s other arguments and
 find them unpersuasive. We hold that the trial court erred
 by refusing to recall witnesses under Rule 63 without find-
 ing any of the exceptions to the rule. But because none of
 the witnesses that the plaintiff requested be recalled could
 have altered the outcome, that error was harmless. There-
 fore, we affirm.
                        AFFIRMED
 No costs.