David Lee Smith and Mary Julia Hook v. Commissioner , 2003 T.C. Memo. 266 ( 2003 )

T.C. Memo. 2003-266
UNITED STATES TAX COURT
DAVID LEE SMITH AND MARY JULIA HOOK, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket Nos. 8747-00, 11725-02. Filed September 11, 2003.
David Lee Smith and Mary Julia Hook, pro sese.
Joan E. Steele, for respondent.
MEMORANDUM OPINION
GERBER, Judge: Respondent, on May 19, 2003, moved to
dismiss these consolidated cases1 for petitioners’ failure to
properly prosecute and to enter income tax deficiencies and
penalties (some in reduced amounts) by default against
1
These cases were consolidated for purposes of trial,
briefing, and opinion.
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petitioners with respect to their 1992 through 1996 tax years.
The trial in these cases had been scheduled for the Court’s
Denver, Colorado, Trial Session commencing May 12, 2003.2 These
cases had been set for a time and date certain of May 19, 2003.
On the morning of May 19, 2003, these cases were called, and
petitioners failed to appear. Respondent moved to dismiss both
cases for petitioners’ lack of prosecution. We shall grant
respondent’s motion to dismiss for lack of prosecution, and
decisions will be entered by default. Given the serious
consequences of this action, we find it appropriate to explain
the events in these cases.
In the notices of deficiency for docket Nos. 8747-00 and
11725-02, dated May 18, 2000, and April 17, 2002, respectively,
respondent determined the following income tax deficiencies and
additions to tax for petitioners:
Docket Additions to Tax
Number Year Deficiency Sec. 6651(a)(1) Sec. 6662
8747-00 1992 $6,736 none $1,347
8747-00 1993 21,167 $7,981 4,233
8747-00 1994 15,394 7,198 3,079
11725-02 1995 82,929 20,325 16,586
11725-02 1996 55,290 13,822 11,058
2
With respect to docket No. 8747-00, the May 12, 2003,
setting was a continuation of a trial that had commenced during
spring 2002, resumed in summer 2002, and had been delayed to
enable the parties to incorporate and consolidate docket No.
11725-02, which involves subsequent tax years for the same
petitioners.
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The following is a chronological summary of the history of
these cases.
On August 15, 2000, petitioners filed a petition in docket
No. 8747-00 (Case I) alleging that respondent erred in
determining deficiencies in income tax and penalties for 1992,
1993, and 1994. By an April 10, 2001, notice of trial, Case I
was set for trial on September 10, 2001, in Denver, Colorado.
On August 10, 2001, petitioners moved for a continuance on
the grounds that petitioner Hook had learned during June 2001,
that petitioner Smith (to whom petitioner Hook was married) was
having an extramarital affair, and, as a result, they were living
separately and not communicating. Petitioner Hook also stated,
in the continuance motion, that she recognized “that continuances
of trial dates are not routinely granted” and that additional
time would permit petitioners “to prepare this case and be in a
position to present it to the Court.”
Respondent objected to a continuance, explaining that
petitioners, during the pretrial period, including the time prior
to petitioner Hook’s June 2001 revelation, had been uncooperative
and avoided any meetings with the Appeals officer or respondent’s
counsel, as required by the Court’s standing pretrial order and
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the Court’s Rules.3 Respondent outlined a series of
communications between petitioners and respondent wherein
pretrial meetings were scheduled and, in each instance re-
scheduled or canceled by petitioners.
Petitioners’ continuance motion was set for hearing at the
September 10, 2001, Trial Session, at which time respondent moved
for a dismissal due to petitioners’ lack of prosecution. At the
hearing petitioner Hook advised the Court that, although she
remained at the location described in the petition, petitioner
Smith had moved to another State and probably did not receive
service of the Court’s Orders or respondent’s motion to dismiss.
Petitioner Smith’s address was provided to the Court, and all
subsequent service of papers was made to petitioners Hook and
Smith at their separate addresses. Petitioners were permitted to
file a written response to respondent’s dismissal motion. The
Court, by an order dated October 12, 2001, denied respondent’s
motion to dismiss and granted petitioners’ continuance motion.
By a November 28, 2001, notice setting case for trial, along
with an attached standing pretrial order, petitioners were
notified that Case I had been set for trial at the Court’s
Denver, Colorado, Trial Session scheduled for April 29, 2002.
3
All section references are to the Internal Revenue Code in
effect for the years at issue, and all Rule references are to the
Tax Court Rules of Practice and Procedure, unless otherwise
indicated.
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Six days before the scheduled April 29, 2002, Trial Session, the
Court received from petitioners a document entitled “MOTION
REQUESTING IMMEDIATE INFORMATION ABOUT TRIAL SETTING, AND, IF
NECESSARY, MOTION REQUESTING NEW TRIAL SETTING”. Said document
was filed at the April 29, 2002, Trial Session as “Petitioners’
Motion To Continue”.
At the trial session, respondent filed a second motion to
dismiss for lack of prosecution alleging that since the
continuance from the September 2001 Trial Session, petitioners
once more failed to meet or meaningfully communicate with
respondent, as required by the Court’s Orders and Rules.
Respondent’s counsel established that petitioners had been
notified by mail on January 9, 2002, of the need for a meeting
prior to the April 29, 2002, Trial Session and a February 5,
2002, conference date was set.
On the night of February 4, 2002, petitioner Hook left a
message on respondent’s counsel’s telephone answering machine
canceling the conference. During February 2002, respondent’s
counsel served discovery on petitioners, but they did not respond
to the discovery requests. By a March 18, 2002, letter to
petitioners, respondent’s counsel again invited petitioners to
confer on April 9, 2002, regarding the April 29, 2002, Trial
Session. In an April 8, 2002, letter, petitioner Hook advised
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respondent’s counsel that she was not aware that Case I had been
scheduled for trial on April 29, 2002.
At the April 29, 2002, Trial Session, the Court asked
petitioner Hook if she was aware that her case had been scheduled
for trial and she responded that when she heard about the trial
setting (about 4 months before), she had written to the Court to
inquire about the trial session and because she did not receive a
response back from the Court, she ignored respondent’s counsel’s
January and March notifications of the impending April trial
date.
The Court’s files maintained for Case I do not reveal any
such letter from petitioner. In addition, the Court’s records
reveal that all Court notifications, Orders, etc., had been sent
to petitioners Hook and Smith at their separate addresses by
certified mail, and that the notices of trial and Orders sent by
the Court to petitioners were not returned as undeliverable.
Under the circumstances, the Court found petitioner Hook’s
explanations to be disingenuous. Accordingly, petitioners’
explanation or excuses were not accepted and Case I was set for
trial on May 2, 2002, at 9:00 a.m. The Court admonished
petitioners that failure to appear would result in a dismissal or
default of their case.
On May 2, 2002, petitioners Hook and Smith appeared and
attempted, as a preliminary matter, to offer four boxes of
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records, each containing hundreds or perhaps thousands of
documents on the ground that respondent had refused to stipulate
after petitioner had proffered them on May 1, 2002, only 1 day
before the trial date.
Respondent’s counsel explained that she refused to blindly
stipulate four boxes of materials without some explanation or
understanding of the individual documents and their relevance
and/or relation to the controverted expense or income items. The
adjustments for petitioners’ 1992, 1993, and 1994 tax years
involved: Underreported gross receipts and disallowed expenses
and depreciation on Schedules C (Profit or Loss From Business),
income from a distribution from a retirement account for 1993,
increase and decrease of reported rental income, disallowance of
miscellaneous itemized deductions, self-employment tax, and
additions to tax under sections 6651(a)(1) and 6662. The
adjustments involved numerous individual items.
During the May 2, 2002, hearing, the Court inquired of
petitioners as to the organization of the contents of the four
boxes. Petitioner Smith, in response, explained that the
documents were not necessarily in chronological order and that
individual folders did not necessarily relate to any particular
adjustment in the notice of deficiency. The Court inspected one
of the numerous documents, a folder, and found that it contained
a large volume of loose papers and miscellaneous documents.
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It was apparent to the Court that the boxes could not be
received in evidence in the state that they were being offered by
petitioners. The Court required the parties to organize the
records in a manner that would provide for an orderly and
meaningful trial, including any decisions about whether such
documents were relevant and/or otherwise admissible into
evidence.
The trial was recessed for 2 hours, and the parties were
required to go through the individual documents and to organize
them in some reasonable manner. The trial was reconvened after 2
hours, and it appeared to the Court that the parties had made a
limited amount of progress in organizing the documents, so the
parties were required to continue their organization of the
documents and the stipulation process until July 15, 2002, at
10:00 a.m. (approximately 60 days later) when the trial would
resume.
On July 15, 2002, upon the resumption of trial, one of the
first matters brought to the Court’s attention was respondent’s
Motion to Dismiss For Failure To Properly Prosecute, which had
been held in abeyance from the April 29 and May 2, 2002,
hearings. In a July 15, 2002, supplement to his earlier motion
to dismiss, respondent, after reiterating the history up through
May 2, 2002, stated that meetings with petitioners concerning the
organization and stipulation of the contents of the four boxes of
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records had not progressed beyond the limited progress that had
been made at the May 2, 2002, Court-supervised session, with the
limited exception of one adjustment involving the amounts claimed
for State income tax for 1992, 1993, and 1994.
Accordingly, the Court spent most of July 15, 2002
supervising the stipulation process and receiving documents into
evidence. This waste of the Court’s time was precipitated by
petitioners’ failure to comply with the Court’s Rules and Orders
that they meet with respondent and propose evidence for
stipulation, even though respondent had offered to meet with
petitioners on several occasions.
On July 16, 2002, after the examination of the first witness
had begun by petitioners, it became apparent to the Court that a
further exchange of documents and information was required by the
parties before the witnesses could be properly examined. The
Court, for the third time, recessed Case I (for approximately 30
days) until August 19, 2002. In addition, the Court provided the
parties with guidance as to the material that must be exchanged
between the parties and as to the proper organization of those
materials.
On August 19, 2002, the trial of Case I resumed and, after
some preliminary matters, a witness was recalled to the stand.
At that point, respondent moved for a continuance on the ground
that a second case involving similar issues for petitioners’ next
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2 taxable years would soon be docketed, and it would conserve the
parties’ and Court’s time to try both cases together.
Petitioners joined in the motion to continue on the grounds that
it would provide time for the parties to further refine
documentary evidence.
A continuance was granted, and the Court provided the
parties with additional guidance regarding trial preparation,
including an admonition to spend the time in recess to prepare
the two cases for trial, including organizing documents and
interviewing witnesses.
In a status report filed on November 19, 2002, respondent
advised that petitioners’ 1995 and 1996 tax years were now in
issue (Case II) and that petitioners had been requested in
writing, as early as October 15, 2002, to begin the trial
preparation process. The adjustments to petitioners’ 1995 and
1996 tax years are substantially the same as those for
petitioners’ 1992, 1993, and 1994 tax years.4 As of the date of
respondent’s report, petitioners had not contacted respondent
regarding Case I or Case II.
On December 13, 2002, the Court’s notice setting cases for
trial on May 12, 2003, along with a standing pretrial order was
issued to the parties ordering, among other matters, the parties
4
The examination of petitioners’ 1992, 1993, and 1994 tax
years began during November 1995 and the examination of
petitioners’ 1995, and 1996 tax years began during November 1997.
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to fully cooperate in the stipulation of facts in accord with the
Court’s Rules and to comply with the requirements of the Court’s
Rules and Orders for trial. Shortly thereafter, respondent moved
to consolidate Case I and Case II, and the Court ordered
petitioners to respond or object by January 31, 2003.
Petitioner, in a motion filed February 10, 2003, moved for
additional time to respond, and in a response dated February 19,
2003, petitioners contended that the cases should not be
consolidated because they would not be able to prepare for trial
by May 12, 2003. The consolidation motion was granted, and Case
I and Case II were not continued from the May 12, 2003, Trial
Session.
On April 9, 2003, respondent moved that the trial of the
consolidated cases be set to begin on a date certain of May 19,
2003 (the second week of the scheduled calendar in Denver,
Colorado), in part to accommodate nine Government employees whose
testimony had been subpoenaed by petitioners. In their April 25,
2003, response to respondent’s motion, petitioners requested that
the case be scheduled for a date certain on or after October 1,
2003. As a reason for the extended time, petitioner Hook
explained that other matters connected with her law practice had
been or were being scheduled during May and through September of
2003. The trial of both cases was set by an Order, dated April
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28, 2003, for a time and date certain of 10:00 a.m., May 19,
2003.
On May 16, 2003, petitioners attempted to file a motion
entitled “Petitioners’ Emergency Motion To Strike Trial Date And
Reset Trial” in Washington, D.C., even though petitioners knew
that the Court was sitting in Denver, Colorado, for a 2-week
period beginning May 12, 2003. In that Motion, it was alleged
that each petitioner had been debilitated for approximately 2
weeks and that they were suffering from different illnesses. In
their untimely motion, petitioners advised that they would not
appear on May 19, 2003, at the scheduled trial.
The trial Judge was not made aware of petitioners’
“Emergency Motion” until immediately before the scheduled May 19,
2003, trial setting. On the morning of May 19, 2003,
petitioners’ cases were called, but petitioners did not appear or
send anyone in their stead. Even though petitioners failed to
appear, 10 witnesses (who were current and former employees of
respondent) appeared pursuant to subpoenas issued by petitioners.
Petitioners failed to advise the witnesses not to appear, even
though petitioners knew they did not intend to appear themselves.
Petitioners did not comply with the Court’s Order or Rules and
Procedures as fully outlined in respondent’s Motion to Dismiss
For Failure To Properly Prosecute, filed on the morning of May
19, 2003.
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The Court took respondent’s Motion under advisement and, by
Order, permitted petitioners until July 3, 2003, within which to
show cause why respondent’s Motion should not be granted and a
decision be entered against petitioners. In a response to an
order to show cause filed July 3, 2003, petitioners, in essence,
presented the following reasons why respondent’s Motion should
not be granted:
(a) Insufficient time to prepare for trial.
(b) Petitioners are lawyers and are not paid to work on
their own cases.
(c) Each petitioner became ill with a different illness, and
in addition, both had laryngitis and were therefore unable to
speak or appear in Court.
(d) When respondent moved for a continuance the Court was
disposed to grant it.
Discussion
Rule 123 of this Court’s Rules of Practice and Procedure
provides that the Court may, at any time, dismiss a case and
enter a decision against a petitioner. As described above,
petitioners have, on several occasions, not been prepared for
trial, although they have been given several opportunities and
almost 2 years to do so. In addition, petitioners have ignored
this Court’s Orders and Rules and protracted these proceedings.
For the reasons stated in respondent’s Motion To Dismiss For
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Failure To Properly Prosecute and the record and transcripts in
these cases (as described in the historical summary set forth
above) respondent’s Motion will be granted and decisions entered
for respondent.5
“The sanction of dismissal is the most severe sanction that
a court may apply, and its use must be tempered by a careful
exercise of judicial discretion.” Durgin v. Graham, 372 F.2d
130, 131 (5th Cir. 1967); Freedson v. Commissioner, 67 T.C. 931,
937 (1977), affd. 565 F.2d 954 (5th Cir. 1978). Petitioners,
both of whom are experienced practicing lawyers, ignored this
Court’s Orders and process. Further, they have failed to comply
with Pretrial Orders and Court Rules requiring the preparation of
their cases, including the requirement to meet and/or work with
counsel for respondent to exchange documents and information,
stipulate facts, and otherwise to prepare for trial. Since
September 2001, petitioners were provided with additional time to
remedy their failure to comply. In each of the numerous
instances that petitioners’ cases were called for trial, or trial
was resumed, they failed to correct or to remedy their prior
failures, and little or no progress had been made from the time
before, even though the Court took great pains to detail what was
5
Respondent, in his Motion for dismissal under
consideration seeks the entry of decisions for deficiencies that,
in some instances, are reduced in amount from the amounts
determined in the notices of deficiency.
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expected. Petitioners have been admonished that their failure to
prepare for trial and/or comply with this Court’s Orders, Rules
and Procedures would result in a default.
In each instance where petitioners have attempted to provide
explanations of their failure to properly proceed and/or
prosecute their cases, their explanations were found to be
disingenuous and without foundation. For example, petitioner
Hook stated that she did not believe that her case was set for
trial, even though so advised by respondent on two different
occasions. Petitioner Hook, a lawyer, suggested that it was
sufficient that she sent a letter to the Court asking whether her
case was set for trial. No such letter has been located.
Moreover, none of the Court’s Notices of Trial, Orders, Pretrial
Orders, and related matters, that were served on and mailed to
petitioners has been returned for failure of delivery.
Petitioners, who are practicing lawyers, could have easily
determined the status of their cases.
On December 13, 2002, petitioners’ consolidated cases were
scheduled for trial at the Denver, Colorado, Trial Session that
commenced on May 12, 2003. Petitioners were well aware of that
date, and yet they did not meet with respondent’s counsel to
prepare their cases for trial. Petitioners did not advise
respondent or the Court that they did not intend to appear until
the eve of trial. Curiously, both petitioners claimed to have
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different debilitating illnesses which they alleged made them
unable to appear for the longstanding trial date. We must note
that petitioners alleged that the onset of their physical
conditions began more than 2 weeks prior to the trial session.
It is also quite curious and hugely coincidental, that both
petitioners contracted laryngitis, in addition to their
debilitating illness, so that they were “conveniently” unable to
orally communicate with the Court.
Although petitioner Hook has filed some responses to the
Court’s Orders and/or respondent’s inquiries of petitioners,
petitioner Smith has not responded to any orders, notices, or
inquiries.6
“There must come a time when even at some risk of error, a
court is justified in accepting as conclusive a series of
apparent subterfuges.” Freedson v. Commissioner, 565 F.2d at 955
6
Respondent’s counsel pointed out that petitioner Smith has
been sanctioned by other courts. In particular, the Court of
Appeals for the Tenth Circuit stated that
Mr. Smith has a long history with this court
marred by repetitive, frivolous filings and general
abuse of the judicial process. This well-documented
course of misconduct began during his tenure as a
practicing attorney, prompting the imposition of
numerous monetary sanctions, his suspension from Tenth
Circuit practice, and ultimately his disbarment by this
court. * * *
Howard v. Mail-Well Envelope Co., 150 F.3d 1227, 1231 (10th Cir.
1998). The Court of Appeals also noted that Mr. Smith had been
disbarred by the U.S. Supreme Court. See In re Disbarment of
Smith, 516 U.S. 984 (1995).
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(quoting Katz v. Commissioner, 188 F.2d 957, 959 (2d Cir. 1951),
affg. a Memorandum Opinion of this Court). Petitioners have had
numerous opportunities to present the merits of their cases. At
this juncture, after three false starts and a total of five
separate opportunities to present the merits of their claims,
petitioners have not meaningfully done so. The taxable years in
question are 1992 through 1996, and these cases have been pending
and/or docketed for a sufficient amount of time for petitioners
to have prepared for and presented the merits of their cases.
Although petitioners alleged that the period for assessment
of any deficiency expired, respondent has shown that at the time
the notices of deficiency were mailed, the period for assessment
remained open due to extensions of the assessment period agreed
to by the parties. In particular, respondent provided the Court
with copies of petitioners’ income tax returns which reflect the
filing dates and copies of agreements extending the periods for
assessment to a time beyond the date the notice of deficiency was
issued.
Respondent has also shown that he does not bear the burden
of proof, burden of going forward with evidence, or burden of
production on any other matter in issue. In that regard, the
examination of petitioners’ 1992, 1993, and 1994 tax years began
November 1995 and the examination of petitioners’ 1995 and 1996
tax years began November 1997. Section 7491 applies to cases in
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which the examination commenced after July 22, 1998.
Accordingly, that section does not apply to the taxable years
before the Court. In their response to respondent’s motion to
dismiss and this Court’s Order to Show Cause, petitioners offer
little to refute respondent’s allegations.
Respondent’s frustration with petitioners is longstanding,
and several motions for dismissal have been filed, the first of
which was during October 2001. Petitioners subpoenaed at least
10 witnesses, all of whom appeared on the specific trial date of
May 19, 2003. These same witnesses also had been required to
appear on two different occasions during summer 2002.
Petitioners did nothing to notify the witnesses not to appear.
At some point during this extended process, petitioners must
accord these proceedings some priority over their other affairs
or risk dismissal. Montgomery v. Commissioner, 367 F.2d 917 (9th
Cir. 1966).
Accordingly,
Respondent’s Motion To Dismiss
for Failure To Properly Prosecute
in Docket Nos. 8747-00 and 11725-02
will be granted, and decisions
entered for respondent.