Opinion
10646-21
02-26-2024
SILVER MOSS PROPERTIES, LLC, SILAS MINE INVESTMENTS, LLC, TAX MATTERS PARTNER, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
CARY DOUGLAS PUGH JUDGE
This case is one of several related but not consolidated cases in which a petitioner challenges the Commissioner's disallowance of a deduction of a conservation easement donation. On November 28, 2023, respondent filed a Motion to Strike Portions of Petitioner's Reply to First Amendment to Answer. Petitioner filed an Objection to that Motion to Strike on December 19, 2023.
Assigned to this Division of the Court are Silver Moss Properties, LLC v. Commissioner, Docket No. 10646-21; Sydney Roads, LLC v. Commissioner, Docket No. 30287-21; Joint Star Properties, LLC v. Commissioner, Docket No. 30289-21; and Jackson Pines, LLC v. Commissioner, Docket No. 6800-23. Additionally, there are two related cases, McKinley Brooks, LLC v. Commissioner, Docket No. 26125-21, and Econfina Resources, LLC v. Commissioner, Docket No. 12980-22, that are assigned to another judge.
Also on December 19, 2023, petitioner filed a Motion for Reconsideration of Order Dated September 20, 2023, along with a supporting Memorandum and Declaration of David M. Wooldridge. It also filed a Motion to Seal those three filings temporarily until the Court decides whether evidence attached to the supporting Declaration should be protected.
On January 10, 2024, respondent filed a Response to the Motion for Reconsideration and to the Motion to Seal. He also filed a Motion to Seal both Responses. On January 17, 2024, petitioner filed an unopposed Motion for Leave to file (under seal) a Reply to the Response and concurrently lodged a Reply to the Response.
This Order addresses these pending Motions.
Background
On July 3, 2023, respondent moved for leave of the Court to amend his Answer to assert the section 6663 civil fraud penalty against petitioner, lodging with the Court a First Amendment to Answer. Petitioner filed a Response opposing respondent's Motion on August 7, 2023.
Unless otherwise indicated, statutory references are to the Internal Revenue Code, Title 26 U.S.C., in effect at all relevant times and Rule references are to the Tax Court Rules of Practice and Procedure.
Later in August 2023, the Internal Revenue Service Office of Chief Counsel (Chief Counsel) held a conference for personnel assigned to its Strategic Litigation Division. One of the panels at that conference was titled "Syndicated Conservation Easements," of which Alexandra Nicholaides, the Strategic Litigation Counsel, was a speaker. On August 23, 2023, prior to the panel, Ms. Nicholaides and eight other Chief Counsel attorneys exchanged informal text messages about syndicated conservation easements, discussing primarily the logistics of the upcoming panel. One Chief Counsel attorney sent the following message which is the focus of one of the pending motions:
Drita said yesterday that all of these are fraud. Should we be asserting fraud in cases where none of the badges are present?
David Wooldridge, a former partner of petitioner's counsel's firm, was included in the Chief Counsel attorneys' group chat. Ms. Nicholaides realized Mr. Wooldridge had been included inadvertently after he sent several messages to the group chat criticizing the discussion. She then ended the group chat and informed Mr. Wooldridge, via message, that the chat was attorney work product subject to clawback.
In an Order issued September 20, 2023, we granted respondent leave to amend and filed the First Amendment to Answer (September 2023 Order). Petitioner then filed a Reply to First Amendment to Answer. Respondent's Motion to Strike seeks to strike two paragraphs in petitioner's Reply as "impertinent, immaterial, and scandalous" under Rule 52.
Petitioner's Motion for Reconsideration seeks reconsideration of the September 2023 Order in the light of the statement in the Chief Counsel attorneys' group chat quoted above. In his Response, respondent states that the message "reference[s] without context a general statement made by an executive during the 'Welcome and Opening Remarks' panel regarding the civil fraud penalty in [syndicated conservation easement] cases." He denies that Drita Tonuzi, the Deputy Chief Counsel (Operations), stated "that fraud should be asserted in every case."
Petitioner also seeks a determination that the chat is not attorney work product and, as a precaution, moved to seal its filings until we ruled on the work product claim. Respondent likewise moved to seal his Response. Respondent does not claim that the group chat constitutes attorney work product, contending instead that certain messages, including the message about what "Drita" said, are protected by the deliberative process privilege.
I. Analysis
A. Deliberative Process Privilege
The deliberative process privilege generally protects the decision making process of government agencies, shielding from disclosure "documents reflecting advisory opinions, recommendations and deliberations comprising part of a process by which governmental decisions and policies are formulated." U.S. Fish & Wildlife Serv. v. Sierra Club, Inc., 592 U.S. 261, 267 (2021) (quoting NLRB v. Sears, Roebuck & Co., 421 U.S. 132, 150 (1975)). For a document to be protected under this privilege, the Commissioner must show that the document is predecisional and deliberative. Id. at 268; Fla. House of Representatives v. U.S. Dep't of Com., 961 F.2d 941, 945 (11th Cir. 1992); Longas-Palacio v. U.S. Citizenship & Immigr. Servs., 658 F.Supp.3d 416, 423 (S.D. Tex. 2023). A document is predecisional if it was "generated before the agency's final decision on the matter" and deliberative if it was "prepared to help the agency formulate its position." U.S. Fish & Wildlife, 592 U.S. at 268.
The deliberative process privilege is not absolute. See Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 420 (1971) (holding that the privilege may be overcome by "a strong showing of bad faith or improper behavior"). And it is not all encompassing:
To fall within the deliberative process privilege, materials must bear on the formulation or exercise of agency policy-oriented judgment. The deliberative process privilege, we underscore, is centrally concerned with protecting the processes by which policy is formulated. . . . Conversely, when material could not reasonably be said to reveal an agency's or official's mode of formulating or exercising policy-implicating judgment, the deliberative process privilege is inapplicable.Petrol. Info. Corp. v. U.S. Dep't of Interior, 976 F.2d 1429, 1435 (D.C. Cir. 1992) (internal citations omitted).
Nothing in the group chat for which respondent asserts the deliberative process privilege reveals information of the kind the privilege was meant to protect. Those messages reveal no policy deliberations and, by respondent's own admission, are an informal discussion among Chief Counsel attorneys. There are no modes "of formulating or exercising policy-implicating judgment," id., nor do the messages "directly contribute to the formulation of important public policy," Soto v. City of Concord, 162 F.R.D. 603, 612 (N.D. Cal. 1995) (citing Kelly v. City of San Jose, 114 F.R.D. 653, 659 (N.D. Cal. 1987)).
Because the group chat is not covered by the deliberative process privilege, we will deny the Motions to Seal and unseal the related filings.
A. Motion for Reconsideration
Using the group chat as "new evidence" of bad faith, petitioner seeks reconsideration of the September 2023 Order. Reconsideration under Rule 161 is intended to correct substantial error, either of fact or law, and facilitates the introduction of new evidence the moving party could not have previously introduced with due diligence. See Estate of Quick v. Commissioner, 110 T.C. 440, 441 (1998). Whether to grant a motion for reconsideration lies within the sound discretion of the Court. CWT Farms, Inc. v. Commissioner, 79 T.C. 1054, 1057 (1982), aff'd, 755 F.2d 790 (11th Cir. 1985).
Applying these principles we conclude that reconsideration of the September 2023 Order is not appropriate. The group chat may be evidence relating to an alleged fact that must be proven or disproven at trial, namely, whether respondent obtained the supervisory approval necessary to satisfy section 6751(b) but it does not constitute "new evidence."
B. Motion to Strike
Finally, we turn to respondent's Motion to Strike two paragraphs in petitioner's Reply to First Amendment to Answer under Rule 52 as "impertinent, immaterial, and scandalous." Rule 52 provides that "the Court may order stricken from any pleading . . . any redundant, immaterial, impertinent, frivolous, or scandalous matter." The two paragraphs that respondent has singled out would not be "impertinent" or "immaterial" if proven at trial and they are no more "scandalous" than other statements the parties have made in this case.
The Court will decide the issues pled by the parties on the basis of the admissible evidence at trial and urges the parties to refrain from distracting themselves or the Court with filings that the Court might characterize as "redundant, immaterial, impertinent, frivolous, or scandalous." The Court urges the parties to focus on trial preparation and limit motions to those that deserve more than a stamp vigorously denying them.
II. Conclusion
For the foregoing reasons, it is
ORDERED that respondent's Motion to Strike Portions of Petitioner's Reply to First Amendment to Answer, filed November 28, 2023, is denied. It is further
ORDERED that petitioner's Motion for Leave to File Under Seal Motion for Reconsideration of Order, Memorandum in Support of Motion for Reconsideration of Order, and Declaration in Support of Motion for Reconsideration of Order, filed December 19, 2023, is denied. It is further
ORDERED that petitioner's Motion for Reconsideration of Order Dated September 20, 2023, filed December 19, 2023, is denied. It is further
ORDERED that respondent's Motion to Seal Responses to Motion for Reconsideration of Order and Motion to Seal, filed January 10, 2024, is denied. It is further
ORDERED that petitioner's Motion to File Under Seal Reply to Response to Motion for Reconsideration of Order, filed January 17, 2024, is denied. It is further
ORDERED that petitioner's Motion for Leave to File Reply to Response to Motion for Reconsideration of Order, filed January 17, 2024, is granted, and the Clerk of the Court shall file the lodged Reply to Response to Motion for Reconsideration of Order (Docket Index No. 62) as of the date of this Order. It is further
ORDERED that the filings at Docket Index Nos. 51, 52, 53, 57, 58, 59, 60, 61, and 62, are unsealed and made viewable.