Presentation on Mandamus and
2 Government attorneys, Sam and Bob
2 Taxpayer attorneys, Alex and Jim
The attorneys are opposing counsel in a TEFRA proceeding
in district court, involving the notorious so-called "Bob's Big
Boy" tax shelter. The shelter has been struck down as lacking
economic substance in several circuit court opinions. Alex and Jim,
representing the Tax Matters Partner, took the case hoping to win
by challenging the validity of the FPAA, rather than trying the
merits of the shelter. Shortly after initiating the suit, while
discovery was ongoing, Alex and Jim filed a motion for summary
judgment, alleging that the "generic" FPAA issued in this case was
invalid because it was not properly addressed to the correct Tax
Matters Partner. Sam and Bob opposed the motion on behalf of the
United States, arguing that the Chomp case, decided by the Tax
Court, established the validity of generic FPAAs. The Chomp
decision was not appealed, and its holding has not received much
attention at the appellate level, either negative or positive. In
addition, Sam and Bob also moved to compel production of some
documents that Alex and Jim had withheld as subject to the
attorney-client privilege. Sam and Bob argued that these documents
were not privileged, under the crime-fraud exception.
The district court has now ruled on both motions, denying
the TMP's motion for summary judgment and granting the government's
motion to compel. The court has directed Alex and Jim to produce
the documents within 30 days. As a result of the court's orders,
Alex and Jim have called a meeting with Sam and Bob to discuss the
next steps in the case.
Alex: Hi Sam, hi Bob, thanks for
meeting with us.
Sam: (feeling smug) Well, I knew
as soon as I saw the judge's decision, you were going to call us to
talk settlement. What kind of offer were you thinking
Alex: Sam, we didn't call this meeting
to talk settlement.
Sam: Oh, you want to concede
then? Ok, I accept. Do you want me to have Bob draft the
Alex: No, no, no - we aren't conceding
Sam: Hmmm . . . no settlement,
no concession, what are you guys planning? The Bob's Big Boy
shelter has been struck down by eight different circuit courts on
economic substance grounds. I know you're not telling me you want
to take this case to trial.
Alex: Sam, the reason we wanted to
talk with you today is because we are looking at the possibilities
of seeking immediate appellate review of the district court's order
denying our SJ motion, and we want to let you know about that and
ask what the government's position would be. Also, we think
we should get immediate review of the district court's order
compelling us to turn over documents protected by the
attorney-client privilege. We have an obligation to our
client, plus we can't live with the judge's decision that the
"crime/fraud" exception applied - but we don't want to go to jail
either, and we only have 30 days to have it reviewed.
Jim: Actually, Alex, I think we
are down to 25 days now.
Alex: My how time flies.
But you get my point. We can't get a direct appeal on that
until the case is over, or we get an interlocutory appeal, or the
judge has put one or both of us in jail. Unless we file for
mandamus to have the judge reversed, and I think we have a pretty
good case on that one.
Sam: Interesting. So you are
planning to get this immediate appellate review both on the
substance and on the discovery?
Alex: Yes - we intend to seek mandamus
on the discovery order, and will include the issue on a motion for
interlocutory appeal as well.
Sam: Mandamus? How would that
Jim: Well, the Ninth
Circuit, where our case is located, has identified five guidelines
to determine whether mandamus is appropriate. The
guidelines are: (1) whether the petitioner has no other adequate
means, such as direct appeal, to obtain the desired relief; (2)
whether the petitioner will be damaged or prejudiced in a way not
correctable on appeal; (3) whether the district court's order is
clearly erroneous as a matter of law; (4) whether the district
court's order is an oft-repeated error or manifests a persistent
disregard of the federal rules; and (5) whether the district
court's order raises new and important problems or issues of first
Sam: Sounds like you've done
Alex: Yes, we have.
Sam: Well, then you know that
mandamus is an extraordinary remedy that the Supreme Court has said
will only be granted in exceptional circumstances that amount to a
judicial usurpation of power. I hardly think the district court's
ruling on a discovery motion warrants such drastic
Sam: That's easy for you to say
because you aren't the one going to jail.
Bob: I think you'll have trouble
meeting those five guidelines in this case. First, you do have
other adequate means to obtain your relief - you can appeal the
final decision in this case, assuming you don't prevail on the
Sam: (smug) Which is a pretty
safe assumption . . .
Bob: And even if you could make
an argument for prejudice, there's no way you can say
that the court's order is clearly erroneous. This tax shelter
was fraudulent, and you know it.
Bob: Regarding the fourth
factor, the order is not an oft-repeated error and it doesn't
represent a persistent disregard of the federal rules. And finally,
the order does not raise an important issue or an issue of first
impression. There's just no way that mandamus is an appropriate way
to go on this discovery ruling. The government would definitely
oppose this relief.
Alex: Well, like I say, it's something
we are considering. I really think the best way to move forward in
this case is for us to seek interlocutory appeal of the district
court's order, and then maybe y'all could agree to a joint motion
to stay the effective date of the discovery order pending
resolution of the appeal. I think this would be the most efficient
way forward for both the government and the petitioners, so it
would be great if you would support our motion.
Bob: Interlocutory appeal, huh?
Well, let's think this through.
Jim: As I'm sure you know,
there are three requirements for certification of an interlocutory
order for appeal. First, there must be a controlling question of
law. Second, there must be substantial grounds for difference of
opinion. And third, an immediate appeal may materially advance the
ultimate termination of the litigation.
Sam: Yes, but now you know those
factors are merely a guide for the court's discretion. The
certification procedure is not mandatory, and a court can deny a
motion for interlocutory appeal, in its discretion, even when the
three factors are present. It's rare for a court to certify an
issue for interlocutory appeal. You've got to have exceptional
circumstances to justify departure from the basic policy of
postponing appellate review until after entry of a final judgment.
And even if the district court certifies the issue, that's no
guarantee that the appellate court will take it up.
Alex: Yes, of course. But we think
this is just the right circumstance for interlocutory
Jim: Exactly. We
definitely have the first factor met on the substantive issue
alone: the issue of the validity of a generic FPAA is a purely
legal question that is dispositive of the case.
Bob: I don't know about that.
The rule under Chomp is that an FPAA is valid if it provides
adequate or minimal notice to the taxpayer that the IRS has finally
determined adjustments to the partnership return. Whether notice is
adequate sounds like a fact question to me, or at least a mixed
question of fact and law. In order to be a pure legal question
appropriate for interlocutory appeal, the issue has to be stated at
a high enough level of abstraction so as to lift the question out
of the details of the facts of our particular case and give it
general relevance to other cases in the same area of
Alex: That's what we've got - the
issue of the validity of a generic FPAA is a legal question of
general relevance to other TEFRA proceedings.
Sam: Hmmmm . . . I'm not sure
we're going to agree with you on that point. What's the second
Bob: It's substantial grounds
for difference of opinion. There's no way that factor is satisfied
in this case.
Alex: Why do you say that?
Bob: Because you have to show a
difference of opinion between the courts on this issue, and it
doesn't exist. There's no court opinion that disagrees with Chomp
or otherwise holds that generic FPAAs are invalid.
Alex: That may be true, but no
appellate court has ruled on this issue, and since it's dispositive
of the entire case, assuming the court of appeals sides with us,
well, I think a court would still exercise its discretion to
certify this issue for interlocutory appeal.
Jim: That's right, Alex,
and that leads us to the third factor, which is definitely on our
side: an immediate appeal is likely to advance the ultimate
termination of the litigation. Once the court of appeals rules that
the FPAA issued in this case was invalid, we've got nothing more to
fight about. The case is over. You can't deny that we've got
judicial economy and efficiency on our side. The Bob's Big Boy
transaction is extremely complex, and our trial is scheduled to
last at least four weeks. The prospect of avoiding all the time and
expense of a lengthy trial is going to be very appealing to the
Alex: I don't think you want to be on
the wrong side of this argument, Sam. You wouldn't want to put
yourself in the position of having to argue in favor of more
wasteful government spending, would you?
Sam: It's so kind of you to be
concerned about me, Alex. But honestly, avoiding the cost of trial
is really the only point in your favor. And if that alone were
enough to justify an interlocutory appeal, then every ruling on any
number of claims, such as lack of jurisdiction or expiration of the
statute of limitations, would be routinely certified for
interlocutory appeal. That just doesn't happen. No court is going
to routinely resort to interlocutory appeal. This is for
exceptional cases only, and this case is far from
Alex: Well, I think our position is
strong. It really is the best way to move forward in this case for
both parties, and I think it would be great if we could come
together and make a joint motion to the court. But if you aren't
agreeable to the motion, we are prepared to go ahead and make it on
our own. And, in that event, we will also file the mandamus
motion with the court of appeals if we don't have this resolved in
sufficient time before we are scheduled to turn over the documents
- I'm pretty sure that we can get a stay from the court of appeals
on the discovery order while it considers the merits of the
Sam: I just don't think we're
going to see eye to eye on this one, Alex. But I appreciate you
calling this meeting so that we can talk about it. Why don't you
give us a few days to go back to our office and think it
Alex: Sure, why don't you give me a
call by the end of the week and let me know your
Sam: Sounds good.
Questions for the
- 1. Has anyone successfully sought
mandamus in a case? Can anyone describe a scenario that is good for
mandamus? What about opening up discovery disputes to
mandamus - will a court of appeals have particular problems with
- 2. Has anyone successfully sought
interlocutory appeal of an issue? Have any judges in the room
certified an issue for interlocutory appeal?
- 3. Has anyone had a trial court
certify an issue for interlocutory appeal but then had the
appellate court refuse to take it up? Does anyone have a sense of
how receptive trial courts or appellate courts are to interlocutory
- 4. If you've had an interlocutory
appeal, did you also seek to stay the trial court proceedings?
(Because they are not automatically stayed.) What was your
experience with that? What did you consider in determining whether
to seek a stay of the trial court proceedings?