Heim v. C.I.R.

• Decision Date: 10 April 1989
• Docket Number: Nos. 88-1633,s. 88-1633
• Citation: 872 F.2d 245
• Parties: 89-1 USTC P 13,801, 89-1 USTC P 9272 Laura HEIM, Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Appellee. Clarence HEIM, Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Appellee. Elmer HEIM, Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Appellee. to 88-1635.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 245

872 F.2d 245

89-1 USTC P 13,801, 89-1 USTC P 9272

Laura HEIM, Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Appellee.

Clarence HEIM, Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Appellee.

Elmer HEIM, Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Appellee.

Nos. 88-1633 to 88-1635.

United States Court of Appeals Eighth Circuit.

Submitted Nov. 16, 1988.

Decided April 10, 1989.

David R. Brennan, Minneapolis, Minn., for appellants.

Janet A. Bradley, Washington, D.C., for appellees.

Before LAY, Chief Judge, JOHN R. GIBSON, Circuit Judge, and NICHOL ^*, Senior District Judge.

JOHN R. GIBSON, Circuit Judge.

Laura, Clarence and Elmer Heim appeal from a decision of the tax court denying leave to file motions to vacate an earlier tax court decision, which determined there were deficiencies in their federal gift taxes and imposed penalties. The Heims contend that the tax court had authority to vacate its earlier decision and should have done so because of the gross negligence of their attorney in conducting a hearing before the tax court and in failing to file an appeal. The Commissioner, however, contends that the tax court lacks equitable jurisdiction to set aside its earlier decision, and that the only basis recognized by courts for such authority has been upon a showing of fraud on the court. Under either view, the ultimate determination we must make is whether the tax court abused its discretion. Because we conclude that the tax court has not abused its discretion, we are not faced with deciding the issue of the tax court's equitable powers. We affirm the judgment of the tax court.

In 1971 Clarence Heim, his sister Laura, and his brother Elmer (the Heims) executed a document granting Clarence's son, Maurice D. Heim, and Maurice's wife an option to purchase farm property in North Dakota for $136,000. In a second document they granted similar rights to Michael J. Heim, also Clarence's son, and Michael's wife to purchase other property in North Dakota for $128,000. In 1977 the Heims executed four contracts for deed conveying land to Clarence's sons, Maurice, Michael and Rick Heim. The Commissioner determined that the 1971 option agreements were unenforceable and that the Heims had sold the property in 1977 for less than fair market value, resulting in taxable gifts. The Commissioner assessed deficiencies against them pursuant to 26 U.S.C. Sec. 2501, and imposed penalties for failure to file gift tax returns and for negligence pursuant to 26 U.S.C. Secs. 6651(a), 6653(a).

The Heims then filed a suit in the United States Tax Court contending that the transfer of the properties in 1977 was undertaken to fulfill the legally binding option agreements executed in 1971. To represent them in this proceeding, the Heims retained Gerald Jukkala, who ultimately submitted the issues to the tax court on stipulated facts. On April 9, 1987, the tax court entered decisions against each taxpayer, finding deficiencies and requiring additions to taxes. Jukkala did not tell the Heims of the adverse ruling and no appeal was filed.

On December 22, 1987 the Heims, through new counsel, filed motions for leave to file motions to vacate the decisions of the tax court, asserting that their former attorney, Jukkala, was grossly negligent in handling the matter before the tax court. They claim that without authority Jukkala entered into grossly inadequate and misleading stipulations before the tax court. Jukkala then failed to advise them of the tax court's adverse opinion, which they discovered when they received a bill from the Internal Revenue Service in September 1987, six months after the tax court's decision was entered. Consequently, the Heims failed to make a motion to vacate the decision or appeal the judgment within the statutory time period. The tax court denied their motions for leave to file motions to vacate and they now appeal.

We are satisfied that if we follow the arguments put forth by either the Heims or the Commissioner, we ultimately reach the same question: whether the tax court abused its discretion in denying the Heims' motion for leave to vacate a decision which had become final. Under 26 U.S.C. Secs. 7481(a)(1), 7483, a tax court decision becomes final 90 days after its entry if no notice of appeal is filed. Because the taxpayers did not file a notice of appeal within the 90 day period, the tax court's decision here is indisputably final. Tax Court Rule 162 provides that a motion to vacate a decision filed more than 30 days after it was entered must be by special leave of the court. Whether to grant such a motion lies within the sound discretion of the tax court. Lentin v. Commissioner, 237 F.2d 5, 6 (7th Cir.1956). Cf. Long v. Commissioner, 757 F.2d 957, 959 (8th Cir.1985) (denial of leave to amend petition within tax court's discretion); Deamer v. Commissioner, 752 F.2d 337, 340 (8th Cir.1985) (denial of motion for continuance within tax court's discretion).

The Heims argue that the tax court nevertheless has the equitable power to vacate its final decision. Originally the tax court was an administrative agency, which did not have the equitable power to vacate a decision once it became final. See Jefferson Loan Co. v. Commissioner, 249 F.2d 364, 366-67 (8th Cir.1957). Although the Eighth Circuit has allowed no exceptions and has strictly applied this jurisdictional limit, id. at 367, some circuits recognized as an exception a showing of fraud on the court. See Toscano v. Commissioner, 441 F.2d 930, 933 (9th Cir.1971). In 1969, the tax court became an Article I court. Tax Reform Act of 1969, Pub.L. 91-172, Sec. 951, 83 Stat. 487 (codified as amended at 26 U.S.C. Sec. 7441 (1982)). The taxpayers argue that by virtue of this change the tax court acquired equitable powers analogous to a district court's authority to vacate a final judgment under Fed.R.Civ.P. 60(b), even though the tax court has not adopted a similar rule.

The Commissioner, on the other hand, maintains that the 90-day appeal period is jurisdictional and that the change in the tax court from an agency to an Article I court in no way affected this strict jurisdictional limit. ¹ We are not convinced that we must ascertain the scope of the tax court's equitable powers. Even if we adopt the Heims' argument that the tax court has an equitable power analogous to Rule 60(b), we are ultimately faced with the same inquiry of whether the tax court abused its discretion in its ruling.

A Rule 60(b) motion to vacate a judgment "provides for extraordinary relief which may be granted only upon an adequate showing of exceptional circumstances." ² Rosebud Sioux Tribe v. A & P Steel, Inc., 733 F.2d 509, 515 (8th Cir.), cert. denied, 469 U.S. 1072, 105 S.Ct. 565, 83 L.Ed.2d 506 (1984) (citing Clarke v. Burkle, 570 F.2d 824, 830-31 (8th Cir.1978)). Because a motion to vacate is viewed with such disfavor, we do not disturb the final decision unless we determine that the court abused its discretion.

For reversal, the Heims contend that Jukkala was grossly negligent in failing to offer evidence of consideration in the 1971 option agreements, to explain deviations between the option agreements and the contracts for deed, and to rebut the assertion of penalties. They also allege Jukkala erred in stipulating to an erroneous appraisal of their property and in failing to notify them of the tax court's decision. Thus, the Heims' argument here is essentially directed toward the adequacy of the representation that they received. We have "generally held that neither ignorance nor carelessness on the part of an attorney will provide grounds for 60(b) relief." United States v. Thompson, 438 F.2d 254 (8th Cir.1971). In Link v. Wabash R.R. Co., 370 U.S. 626, 633-34, 82 S.Ct. 1386, 1390-91, 8 L.Ed.2d 734 (1962), the Supreme Court held that the district court had not abused its discretion by dismissing the action for an attorney's failure to prosecute a claim. In its analysis, the Court stated:

There is certainly no merit to the contention that dismissal of petitioner's claim because of his counsel's unexcused conduct imposes an unjust penalty on the client. Petitioner voluntarily chose this attorney as his representative in the action, and he cannot now avoid the consequences of the acts or omissions of this freely selected agent. Any other notion would be wholly inconsistent with our system of representative litigation, in which each party is deemed bound by the acts of his lawyer-agent and is considered to have "notice of all facts, notice of which can be charged upon the attorney."

Id. at 633-34, 82 S.Ct. at 1390-91 (citations omitted). We therefore conclude that any errors committed by Jukkala, even accepting the designation of gross negligence, do not constitute an adequate showing of "exceptional circumstances," warranting vacation of the tax court decision. The Heims voluntarily chose Jukkala to represent them, and they cannot now avoid his acts or omissions in the proceeding. The Heims further contend that Jukkala lacked authority in the proceeding to stipulate to certain facts. In this respect, we observe that Jukkala had represented the Heims since 1977, some nine years before the hearing in question, and that he was fully authorized to act on their behalf at the tax court proceeding.

The Heims rely on several cases which allow appellate courts to vacate a judgment due to attorney negligence. The facts of these cases, however, show more extreme misconduct by the attorney than the case before us. In Surety Ins. Co. v. Williams, 729 F.2d 581 (8th Cir.1984), an attorney, without the consent of his clients, agreed to settle the case outside of court and the district court entered a judgment in accordance with the settlement agreement. Because the clients were completely unaware of their attorney's unauthorized conduct concerning settlement, which brought the litigation to an end, the appellate court vacated the district court's order denying Rule 60(...