Barrett v. U.S.

• Decision Date: 27 November 1996
• Docket Number: No. 95-21066,95-21066
• Citation: 100 F.3d 35
• Parties: -7375, 96-2 USTC P 50,656 Bernard M. BARRETT, Jr., M.D.; Plastic & Reconstructive Surgeons, P.A., Plaintiffs-Appellants, v. UNITED STATES of America, et al., Defendants, United States of America, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 35

100 F.3d 35

78 A.F.T.R.2d 96-7375, 96-2 USTC P 50,656

Bernard M. BARRETT, Jr., M.D.; Plastic & Reconstructive Surgeons, P.A., Plaintiffs-Appellants, v. UNITED STATES of America, et al., Defendants United States of America, Defendant-Appellee.

No. 95-21066.

United States Court of Appeals Fifth Circuit.

Nov. 27, 1996.

Edward Dee Urquhart, Silvia Elena Hassell, Urquhart & Hassell, Houston, TX, for plaintiffs-appellants.

Gary R. Allen, Jonathan S. Cohen, Sally Jane Schornstheimer, U.S. Department of Justice, Tax Division, Appellate Section, Washington, D.C., for defendant-appellee.

Appeal from the United States District Court for the Southern District of Texas.

Before POLITZ, Chief Judge, and SMITH and DUHE, Circuit Judges.

DUHE, Circuit Judge:

Plaintiffs-Appellants Bernard M. Barrett, Jr., M.D., and Plastic and Reconstructive Surgeons, P.A., appeal the district court's judgment denying them actual and punitive damages for the unauthorized disclosure by the Internal Revenue Service of certain return information in violation of 26 U.S.C. §§ 6103(k) and 7431(b). The court held that Appellants had demonstrated neither that they suffered harm as a result of the unauthorized disclosure nor that the conduct of the IRS was willful or grossly negligent so as to justify an award of punitive damages. Alternatively, the court held that even if Appellants had made the requisite showing for punitive damages, the plain language and structure of 26 U.S.C. § 7431(c) prohibits their award in the absence of actual damages. Insofar as we affirm the court's decision that Appellants failed to prove actual damages under 26 U.S.C. § 7431(c)(1)(B)(i) and punitive damages under 26 U.S.C. § 7431(c)(1)(B)(ii), it is unnecessary to resolve the statutory interpretation issue whether 26 U.S.C. § 7431(c) authorizes an award of punitive damages where actual damages have not been shown.

I. FACTS ¹

The saga of Dr. Barrett continues. ² Bernard M. Barrett, Jr., M.D. is the president and sole owner of Plastic & Reconstructive Surgeons, P.A. ("PARS"). In 1979, the Internal Revenue Service began an audit of Dr. Barrett's personal and corporate tax returns for the years 1976, 1977, and 1978. When the initial investigation revealed a discrepancy of $100,000 between Dr. Barrett's books and his bank records, the IRS transferred the case from its civil division to its Criminal Investigation Division ("CID") under the care of Special Agent Michael O. Hanson.

After two informants told the IRS that Dr. Barrett did not accurately report all cash payments received from his patients, ³ Agent Hanson sent a summons to PARS seeking its patient ledger cards and other business records. When Dr. Barrett responded that PARS would not comply with the summons, Agent Hanson thought it necessary to inquire of Dr. Barrett's patients the amount each had paid for Dr. Barrett's services and whether any part had been paid in cash. He therefore sent summonses to the hospitals where Dr. Barrett performed surgery and one to Dr. Barrett individually to obtain Dr. Barrett's patient lists. All but four of the sixteen hospitals complied, providing Agent Hanson with a list of 386 names and addresses of Dr. Barrett's patients.

Agent Hanson then sent a "circular letter" to each of those patients, disclosing Dr. Barrett's name and address, informing them in the text of his letter that Dr. Barrett was being investigated by the Criminal Investigation Division of the IRS, requesting information about the nature and amount of fees paid to Dr. Barrett, and identifying himself in the signature block as a Special Agent with the Criminal Investigation Division. One-hundred twenty-six letters were returned as undeliverable, leaving 260 letters outstanding.

In November, 1983, Dr. Barrett commenced this action against the United States, alleging the circular letters unlawfully disclosed tax return information in violation of 26 U.S.C. §§ 6103 and 7431 of the Internal Revenue Code ("Code"). ⁴ A panel of this Court agreed and remanded the case to the district court for a determination of damages. Barrett v. United States, 51 F.3d 475, 480 (5th Cir.1995) ("Barrett I "). On remand, the district court found that Dr. Barrett had failed to prove he suffered actual damages from the unlawful disclosure. Barrett v. United States, 917 F.Supp. 493, 502 (S.D.Tex.1995) ("Barrett II "). The court then rejected Dr. Barrett's request under Code § 7431(c)(1)(B)(ii) for punitive damages, finding that the IRS did not act willfully or with gross negligence in disclosing that Dr. Barrett was under criminal investigation. Id. at 504. The court held alternatively that even if Dr. Barrett had proved willfulness or gross negligence, Code § 7431(c) barred an award of punitive damages in the absence of actual damages. Id. Accordingly, the court awarded Dr. Barrett only statutory damages pursuant to Code § 7431(c)(1)(A) in the amount of $260,000, plus costs. Id. Dr. Barrett now appeals. He argues that the district court, by failing to award either actual or punitive damages under Code § 7431(c)(1)(B), violated the law of the case, as he interprets it, of Barrett I.

II. STANDARD OF REVIEW

The district court's findings that Dr. Barrett failed to establish under Code § 7431(c)(1)(B) actual and punitive damages arising from Agent Hanson's unlawful disclosure are findings of fact subject to reversal only upon clear error. A finding is clearly erroneous only when, although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed. Fed.R.Civ.P. 52(a); see also United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 541-42, 92 L.Ed. 746 (1948).

Dr. Barrett would have us review the district court's holdings de novo, arguing that the court violated the law of the case doctrine in rejecting his evidence on the actual and punitive damages claims. We cannot accept this invitation.

Dr. Barrett holds the erroneous belief that our opinion in Barrett I directs the district court on remand to find for Dr. Barrett in the very amount of actual and punitive damages he requests. In support of his reading, he points to our language in Barrett I remanding the case to the district court, in which we state:

Because the district court erred in concluding that the IRS was not liable, it made no findings on the issue of Dr. Barrett's damages. We acknowledge that Dr. Barrett presented uncontradicted evidence of his damages during trial, and he urges this Court to assess damages. We believe, however, that the trial level is the appropriate site for the factual determination of the amount of damages to be awarded to Dr. Barrett as a result of Agent Hanson's mailing of the circular letters. Accordingly, we REVERSE the judgment of the district court and REMAND for a determination of damages.

Barrett I, 51 F.3d at 480. Dr. Barrett argues that this language makes both the causation between the unlawful disclosures and his loss of business and the amount of damages foregone conclusions. For the district court to hold otherwise, he complains, violates the law of the case doctrine.

Dr. Barrett is incorrect. While we recognize the ambiguity of the above-quoted language, taken in the context of our whole opinion, it cannot be construed as Dr. Barrett reads it. The entirety of our opinion focuses exclusively on the liability phase of the action; nowhere do we discuss the merits of Dr. Barrett's actual and punitive damages claims. Our statements acknowledging "that Dr. Barrett presented uncontradicted evidence of his damages during trial," id., and remanding to the district court for a "determination of the amount of damages to be awarded," id. (emphasis added), do not, contrary to Dr. Barrett's assertion, reflect a decision on our part holding that Dr. Barrett has factually proven either actual or punitive damages. Our first statement simply reflects our finding that only Dr. Barrett, and not the United States, has presented damage evidence; whether this evidence in turn is sufficiently credible to justify an award of actual or punitive damages is a determination we appropriately left to the district court on remand.

Our second statement, although an acknowledgment of the propriety of some damages, is not ipso facto a comment on the propriety of actual and punitive damages themselves. We read, and believe the panel in Barrett I intended, the phrase "amount of damages" to authorize the district court to award either statutory damages pursuant to Code § 7431(c)(1)(A) or actual or punitive damages pursuant to Code § 7431(c)(1)(B), whichever the court on remand, after a thorough review of the damage evidence, found appropriate. In other words, we concluded in Barrett I that Dr. Barrett is entitled to some damages; whether they be statutory, actual, or punitive damages is a factual determination that only the district court is competent to make.

The law of the case, therefore, established in Barrett I holds only that the United States is liable to Dr. Barrett and PARS for some damages for the unlawful disclosures of return information; significantly, it does not also specify the type of damages to which Dr. Barrett is entitled. Rather than expressing an opinion on that issue, we specifically left that factual determination to the district court. Any other reading, as the district court points out, is nonsensical; we would not have directed the district court to make a "factual determination of the amount of damages" had we meant it "merely to perform the ministerial duty of writing down the damage amount Barrett requested at trial." Barrett II, 917 F.Supp. at 496 n. 5. On appeal, therefore, are the court's factual determinations of damages. Our review is thus appropriately circumscribed by the "clearly erroneous" standard.

III. ANALYSIS

Code § 6103(a) provides that tax "[r]eturns and return information shall be...