Court Opinion

ID: 4486653
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:34:35.80391+00
Date Added: 2024-06-11T15:03:50.365792
License: Public Domain

KÓRNER, J., dissenting: I must respectfully dissent from the opinion of the majority in this case. As written, the majority opinion holds that the bankruptcy court's determination of Mr. Kroh's tax liability (petitioner's husband) did not prevent respondent, either by res judicata or collateral estoppel, from pursuing the present action against petitioner for the full amount of the deficiency and additions to tax as determined in respondent's notices of deficiency. When this motion is considered under the doctrine of res judicata, as opposed to collateral estoppel, it appears that a contrary result is warranted. I would urge that the rule of res judicata applies in this proceeding. 1. One Cause of Action The majority concludes that respondent's claim against Mr. Kroh is a separate and distinct cause of action from that of respondent's claim against petitioner. The liability for tax for a particular year is considered to be a single cause of action. Commissioner v. Sunnen, 333 U.S. 591, 598 (1948); Burford-Toothaker Tractor Co. v. Commissioner, 192 F.2d 633, 634 (5th Cir. 1951), affg. 45 B.T.A. 1158 (1941); Peck v. Commissioner, 90 T.C. 162, 165-166 (1988), affd. 904 F.2d 525 (9th Cir. 1990); Arnold v. United States, 784 F. Supp. 773 (D. Ore. 1992). Where a joint return is filed, each spouse is jointly and severally liable for the full amount of the tax determined on the return, regardless of the amount of each spouse's taxable income. Sec. 6013(d)(3). In this respect, the regulations provide: Although there are two taxpayers on a joint return, there is only one taxable income. The tax on the joint return shall be computed on the aggregate income and the liability with respect to the tax shall be joint and several. [Sec. 1.6013-4(b), Income Tax Regs.] The principle that the liability for tax for a particular year constitutes a single cause of action is not altered by the fact that a husband and wife who file a joint return are considered two separate and distinct taxpayers. As noted in the majority opinion, respondent may proceed against the spouses separately and obtain separate judgments against each. However, research of relevant case law reveals no authority that states that proceeding separately against spouses who file a joint return results in two separate causes of action. On the contrary, although the spouses are severally liable with respect to the tax, they are also jointly liable, “there is only one obligation for each year”, and “Respondent is entitled to only one satisfaction of that obligation.” Dolan v. Commissioner, 44 T.C. 420, 430 (1965); see Erickson v. United States, 159 Ct. Cl. 202, 309 F.2d 760, 767 (1962). As long as respondent is given the opportunity to litigate the full amount of tax due on the return, and intended to take advantage of that opportunity, both proceedings involve the same cause of action. Cf. Nevada v. United States, 463 U.S. 110, 130-134 (1983). The majority relies primarily on Dolan v. Commissioner, supra, and Tavery v. United States, 897 F.2d 1032 (10th Cir. 1990), as support for the proposition that respondent's claims against petitioner and Mr. Kroh were two separate causes of action. Neither case supports their position. In Dolan v. Commissioner, supra, this Court held that an agreed assessment against one spouse to a joint return, or in other words an administrative determination that one spouse owed tax, would not prevent respondent from proceeding against and obtaining a judgment against the other spouse for the same tax. From this holding, the majority claims that it has support for the proposition that a judicial determination that one spouse does not owe tax does not prevent respondent from proceeding against and obtaining a judgment against the other spouse for that tax. Not only does the majority's analysis find no support in Dolan, it contradicts the common law authority we relied on in deciding that case. For example, 50 C.J.S., Judgments, sec. 759, at 283 (1947),1 provides: Where an obligation is joint and several, an unsatisfied judgment against one of the obligors will not bar an action against another debtor, but a successful defense, going to the merits of the cause of action, by one joint and several debtor will bar an action against another debtor. As can be seen from this passage, Mr. Kroh's successful defense going to the merits, see infra, of the cause of action should estop respondent in the instant matter from obtaining anything other than the unsatisfied judgment he obtained in the bankruptcy court. For tax purposes, apparently only the Court of Appeals for the Tenth Circuit, to which appeal in this case lies, has discussed “cause of action” under facts similar to those present in the instant matter. Tavery v. United States, supra; Conklin v. Commissioner, 897 F.2d 1027 (10th Cir. 1990), revg. 91 T.C. 41 (1988). Those cases involved a wife and husband, respectively, who had previously litigated their respective liabilities on a joint return before different tribunals. In analyzing those cases, the Tenth Circuit stated that respondent had improperly “split * * * [her] cause of action on this joint return” by issuing the spouses separate statutory notices which had determined deficiencies in different amounts. Conklin v. Commissioner, supra at 1031. In the instant matter, respondent did not even attempt to split the cause of action since apparently in no year before the Court did the deficiency determined against petitioner vary in amount from the deficiency determined against Mr. Kroh.2 Consequently, the Tenth Circuit's statement in Tavery v. United States, supra at 1033, that the claims against spouses to a joint return are “generally regarded as separate and distinct” should be interpreted as nothing more than support for the principle that respondent can proceed against the spouses separately for collection purposes, not as support for the proposition that separate, causes of action are involved.3  Contrary to what is stated in the majority opinion, I would hold that the bankruptcy court did not merely determine Mr. Kroh's liability for tax; it determined the amount of tax due on the joint return. As we have already said, there is only one obligation for each year, which is the correct amount of tax owing on the joint return, i.e. one cause of action. Dolan v. Commissioner, supra. Respondent can proceed against petitioner separately and can obtain a separate judgment against her, but if res judicata applies here, which I believe it does, respondent should be bound by the prior judgment of the bankruptcy court, which includes the bankruptcy court's determination as to the amount of tax due on the joint return. 2. Res Judicata Res judicata, as opposed to collateral estoppel, bars further claims by the parties or their privies on the same cause of action. Montana v. United States, 440 U.S. 147, 153 (1979). As the Supreme Court said in Commissioner v. Sunnen, 333 U.S. 591, 597 (1948), and as the majority itself recognizes: The rule [of res judicata] provides that when a court of competent jurisdiction has entered a final judgment on the merits of a cause of action, the parties to the suit and their privies are thereafter bound “not only as to every matter which was offered and received to sustain or defeat the claim or demand, but as to any other admissible matter which might have been offered for that purpose.” * * * [Citations omitted.] I believe that there was a single cause of action here, which was the liability for tax on the joint return which was filed by petitioner and her husband. That cause of action was determined in the bankruptcy court in the case of petitioner's husband, a matter which the majority opinion correctly notes was within the jurisdiction of the bankruptcy court to handle.4 It appears that the bankruptcy court's determination was a final judgment. Once the order of the bankruptcy court becomes final with respect to respondent's tax claims, generally neither the amount nor the validity of the bankruptcy court's order is subject to review or reconsideration by this Court. McQuade v. Commissioner, 84 T.C. 137, 145 (1985); Comas, Inc. v. Commissioner, 23 T.C. 8, 12 (1954). As noted by the majority in its note 7, a decision entered approving a stipulated settlement agreement is an adjudication on the merits for purposes of res judicata. United States v. International Building Co., 345 U.S. 502, 506 (1953);5 Erickson v. United States, 159 Ct. Cl. 202, 309 F.2d 760 (1962); Sun Chemical Corp. v. United States, 218 Ct. Cl. 702 (1978); Maher v. United States, 145 Ct. Cl. 701, 172 F. Supp. 689 (1959). 3. Privity A privy is one who is “so identified in interest with another that he represents the same legal right”. United States v. California Bridge & Construction Co., 245 U.S. 337, 341 (1917). In part, the reason for limiting the application of res judicata to parties and privies “derives from the ancient principle that a person cannot be bound by a judgment unless he has had reasonable notice of the claim against him and an opportunity to be heard in opposition to that claim.” IB, Moore's Federal Practice, par. 0.411[1], at 388 (2d ed. 1992). A person cannot be bound, and will not be considered a privy, if it would violate due process. “[Pjrivity * * * represents a legal conclusion that the relationship between [parties] is sufficiently close to [support] preclusion.” Southwest Airlines Co. v. Texas International Airlines, 546 F.2d 84, 95 (5th Cir. 1977); Levy v. United States, 776 F. Supp. 831 (S.D.N.Y. 1991). Thus, the historic reason for limiting the application of res judicata to parties and their privies was to ensure that a litigant was not denied his day in court. However, under the common law theory that estoppels must be mutual, it also sometimes gave a party who had the opportunity to litigate his case in a prior proceeding the opportunity to relitigate it against a third party in a second proceeding. Recognizing that this person already has had a full and fair opportunity to present his case, the modern trend of courts has been to abandon the requirement of mutuality of parties when applying res judicata against the party who was bound by the prior action. As was stated in 46 Am. Jur. 2d, Judgments, sec. 522 at 674-675 (1969): Indeed, in the more modern cases, some courts, departing from the doctrine of mutuality, have confined the requirement of privity to the party against whom the plea of res judicata is asserted, and have held that one not a party to a judgment nor in privity with such party may assert res judicata against a party bound by the judgment, so as to preclude the relitigation of an issue determined in the prior action * * * [Fn. refs, omitted.] Several courts have abandoned the common law requirement of literal privity, and have held that courts should apply the doctrine of privity with flexibility. Amalgamated Sugar Co. v. NL Industries, Inc., 825 F.2d 634, 640 (2d Cir. 1987); United States v. ITT Rayonier, Inc., 627 F.2d 996, 1003 (9th Cir. 1980); see also St. Louis Baptist Temple, Inc. v. FDIC, 605 F.2d 1169, 1174-1175 (10th Cir. 1979). While at common law literal privity was required, “federal courts have repeatedly held that judgments can bind persons not party to the litigation in question”; in this respect, “federal courts will bind a non-party whose interests were represented adequately by a party in the original suit.” Southwest Airlines Co. v. Texas International Airlines, supra at 94-95. See also Graves v. Associated Transport, 344 F.2d 894 (4th Cir. 1965); Bruszewski v. United States, 181 F.2d 419 (3d Cir. 1950). For purposes of collateral estoppel, in Parklane Hosiery Co. v. Shore, 439 U.S. 322 (1979), “the Supreme Court made it clear that a defendant who has a full and fair opportunity to litigate an issue in one action may be precluded from defending itself on the same issue in another action brought by a different party.” Starker v. United States, 602 F.2d 1341, 1348 (9th Cir. 1979). On at least three occasions, including in this Court, respondent has had offensive6 collateral estoppel used against her when she litigated an issue against one taxpayer, lost, and then attempted to litigate the same issue against a second taxpayer in a second proceeding. Starker v. United States, supra; Graham v. Commissioner, 76 T.C. 853 (1981); Walsh v. United States, 520 F. Supp. 377 (N.D. Tex. 1981). For purposes of res judicata, the Supreme Court has recognized that the absence of mutuality does not necessarily prevent the doctrine from being imposed against the Government. Nevada v. United States, 463 U.S. 110, 143 (1983). Contrary to what was stated by the majority, United States v. Mendoza, 464 U.S. 154, 162 (1983), did not “indicate” otherwise since that case expressly recognized that it had permitted such a result in Nevada. United States v. Mendoza, supra at 163 n.8. Furthermore, the majority here has overruled this Court's opinion in Graham v. Commissioner, supra, without discussing “the effect, if any,” Mendoza should actually have on it. McQuade v. Commissioner, 84 T.C. 137, 144 (1985). In this respect, I believe the majority quotes Mendoza out of context by flatly stating that “nonmutual offensive collateral estoppel simply does not apply against the Government”, majority op. p. 402.7  Under the modern trend of the authorities, which I have mentioned above, I believe that respondent had a full and fair opportunity to litigate the joint and several liability of this petitioner (and her husband) on their joint tax return in the bankruptcy proceeding of petitioner's husband; that this single tax liability was one cause of action; and that when it was determined in the bankruptcy proceeding, it operated as res judicata as to the tax liability of this petitioner on that joint return in this proceeding before us, even if she was not a formal party to the husband's bankruptcy proceeding. Even if it is held that privity is necessary in order to invoke res judicata in the present situation, I would submit that such privity exists. As we have seen above, there is only one cause of action here, and that is liability for the single tax (be it joint or several) which is engendered by the joint return which was signed by petitioner and her husband. To me it is simply ludicrous to say that when a husband and wife sign a single joint income tax return, there is no privity between them as to this return and the liability shown therein.8 The majority opinion apparently relies upon Tavery v. United States, 897 F.2d 1032 (10th Cir. 1990), which says there is no privity between parties to a joint return, citing Rodney v. Commissioner, 53 T.C. 287 (1969), a three-judge plurality opinion, with six judges concurring and a powerful dissent by six judges. The Rodney case, unfortunately, has been loaded with more baggage than it can bear. An examination of the case reveals that the only issue presented to the Tax Court in that case was whether or not there was privity between husband and wife on a joint return as to fraud. This Court held that such privity did not exist, but it must be understood that the only holding was that there was no privity between the spouses on the question of fraud, which is a particularly personal matter of intent, and was not to be imputed to one spouse from the other. It should be noted that at the time Rodney was decided, the statute with respect to fraud (section 6653(b) in the present case) did not specifically require a separate determination by respondent of fraud against each spouse. So far as it goes, therefore, Rodney was perfectly good law (although now made moot by the provisions of Pub. L. 91-679, sec. 2, 84 Stat. 2063 (1971), requiring a separate determination of fraud as to each spouse in a joint return). Rodney, however, does not stand for the proposition that there is no privity between spouses to a joint return, with respect to the tax liability itself, despite dicta to this effect in the opinion. See Rodney v. Commissioner, supra at 325 (Dawson, J., dissenting). 4. Conclusion A court “may not decline to apply res judicata in the interests of common sense and simple justice”. Russell v. Commissioner, 678 F.2d 782, 785 n.3 (9th Cir. 1982) (citing Federated Department Stores, Inc. v. Moitie, 452 U.S. 394 (1981)); Arnold v. United States, 784 F. Supp. 773 (D. Ore. 1992). This case is merely a further proceeding on the same cause of action as was present in the case of petitioner's husband before the bankruptcy court. The same issues of fact and law concerning the same liability for the same tax are at issue in both proceedings. There can be only one obligation with respect to this tax. The bankruptcy court has determined the deficiency, interest, and additions to tax that are owed on this joint return, and its determination is entitled to res judicata effect. For these purposes, it does not matter that the judgment of the bankruptcy court was arrived at pursuant to a stipulation between the parties. United States v. International Building Co., 345 U.S. 502 (1953). In the majority opinion, it is stated that there must be three conditions met by petitioner in order for the doctrine of res judicata to apply in this case; viz: (1) The cause of action in the prior bankruptcy case of petitioner's husband is the same cause of action as in the instant proceeding; (2) petitioner qualifies as a party or a privy of her husband with respect to his bankruptcy case, and (3) the approval by the bankruptcy court of Mr. Kroh's settlement agreement with respondent constitutes a final judgment on the merits of the single cause of action. [Majority op. pp. 398-399.] I submit that all three of those conditions have been satisfied in this case, insofar as the tax liability for the tax owing on the joint return of petitioner and Mr. Kroh is concerned. In petitioner's case before this Court, the only new issues of fact and law, and consequently the only matters that should be considered outside res judicata, are those defenses to tax liability that are uniquely petitioner's and which petitioner's husband was incapable of raising in the first proceeding, e.g., petitioner's innocent spouse status. Since petitioner's husband has already paid the deficiency, the only issues left to determine are whether petitioner has any personal defenses that would prohibit respondent from collecting the additions to tax from her. Accordingly, I would grant petitioner's motion for summary judgment in part, as to the liability for tax and additions thereto, based upon res judicata, leaving open only the issue of petitioner's liability as an innocent spouse. COHEN, J., agrees with this dissent.   Cited at Dolan v. Commissioner, 44 T.C. 420, 427 (1965).    Respondent issued a joint statutory notice for 1979 and 1980, and issued a separate statutory notice to petitioner for 1982. The majority opinion does not state whether the 1982 determined deficiencies were the same.    The majority opinion states: “Because respondent is entitled to have the joint obligation of petitioner and Mr. Kroh satisfied only once, petitioner is potentially liable for paying only those amounts in excess of the taxes paid by the trustee in the bankruptcy case of her husband.” Majority op. p. 397. How can this statement be rationalized except on the basis that there is only one obligation, i.e., one cause of action, which is the liability of Mr. Kroh and petitioner, jointly or severally, for the tax shown by the single joint return? Can it be that the husband's liability for tax on a joint return can be adjudicated in this Court to be X dollars, while the wife's liability for tax based on the same joint return, and nothing else appearing, can be adjudicated to be 10 X dollars, because respondent sends differing statutory notices to the spouses separately? I do not think that Dolan v. Commissioner, supra, holds that the principles of a single obligation and joint liability are to be ignored in this Court.    The majority notes that the bankruptcy court lacked jurisdiction over petitioner and stresses that petitioner's tax liability was therefore completely separate and distinct from its determination of Mr. Kroh's liability, citing Richmond v. United States, 456 F.2d 458, 463 (3d Cir. 1972). In distinguishing McQuade v. Commissioner, 84 T.C. 137 (1985), however, the majority recognizes that the bankruptcy court's lack of jurisdiction over a taxpayer is actually irrelevant for purposes of imposing estoppel against the Government. We decided McQuade v. Commissioner, supra, using collateral estoppel principles. The majority, in interpreting Richmond v. United States, supra, unfortunately confuses two separate questions: the jurisdiction to determine liability versus the jurisdiction to determine collectibility.    In view of this concession, I find it curious that the majority opinion continues to state “there was no actual adjudication on the merits of Mr. Kroh's tax liability”, majority op. p. 396, and “the judgment entered by the bankruptcy court was only a pro forma acceptance by the bankruptcy court of an agreement between respondent and Mr. Kroh's trustee in bankruptcy.” Majority op. p. 401. Surely, the “Compromise, Settlement Agreement and Stipulation”, under which Mr. Kroh's liability was determined, as detailed in the majority's findings of fact, speaks for itself.    As noted by the majority, nonmutual collateral estoppel is termed “offensive” or “defensive” depending on whether it is a plaintiff or a defendant, respectively, moving for it. It has been stated that this distinction “blurs” in tax cases. Walsh v. United States, 520 F. Supp. 377, 381 (N.D. Tex. 1981). In the instant matter, it becomes even more blurry since respondent is the defendant herein but is analyzed as the plaintiff, i.e., “respondent can proceed against the spouses separately.” Regardless, the requirements of Parklane Hosiery Co. v. Shore, 439 U.S. 322 (1979), for employing estoppel offensively are met. The majority's implication that petitioner could easily have joined in her husband's bankruptcy proceeding but “chose not to file a petition” in bankruptcy is disingenuous; it is conceded that petitioner herein had no right to file a petition and become a party in her husband's bankruptcy case, but the identity of interest between the spouses as to their joint tax liability supports the conclusion that she (as well as respondent) should be bound by the result in the bankruptcy court. See Southwest Airlines Co. v. Texas International Airlines, 546 F.2d 85 (5th Cir. 1977). Additionally, there is no evidence that respondent did not have the opportunity to litigate her case in the bankruptcy court.    The Supreme Court stated that “nonmutual collateral estoppel simply does not apply against the Government in such a way as to preclude relitigation of issues such as those involved in this case.” Mendoza v. United States, 464 U.S. 154, 162 (1984). While the majority emphasizes the first 10 words of this quote, other courts have held that the rule against applying nonmutual estoppel against the Government is not absolute. E.g., Benjamin v. Coughlin, 905 F.2d 571 (2d Cir. 1990); NLRB v. Donna-Lee Sportswear Co., 836 F.2d 31 (1st Cir. 1987); Colorado Springs Production Credit Association v. Farm Credit Admin., 669 F. Supp. 1044 (D. Colo. 1987).   “Privity” is defined by Black's Law Dictionary 1079 (5th ed. 1979) as: such an identification of interest of one person with another as to represent the same legal right. Derivative interest founded on, or growing out of, contract, connection, or bond of union between parties; mutuality of interest. * * * Concept of “privity” pertains to the relationship between a party to a suit and a person who was not a party, but whose interest in the action was such that he will be bound by the final judgment as if he were a party. Private knowledge; joint knowledge with another of a private concern; cognizance implying a consent or concurrence. * k * [Citations omitted.J