In re Robidoux

• Decision Date: 30 July 1990
• Docket Number: Appeal No. 89-40052-XX.,Bankruptcy No. 4-80-00378-G
• Citation: 116 BR 320
• Parties: In re Richard ROBIDOUX, Debtor.
• Court: U.S. District Court — District of Massachusetts

116 B.R. 320 (1990)

In re Richard ROBIDOUX, Debtor.

Bankruptcy No. 4-80-00378-G, Appeal No. 89-40052-XX.

United States District Court, D. Massachusetts.

July 30, 1990.

Jay M. Pabian, Bruce W. Edmands, Mahoney, Hawkes & Gouldings, Boston, Mass., for Richard E. Robidoux.

M. Ellen Carpenter, Asst. U.S. Atty., Boston, Mass., Thomas R. Jones, Atty. Tax Div., U.S. Dept. of Justice, Washington, D.C., for U.S.

MEMORANDUM OF DECISION

YOUNG, District Judge.

INTRODUCTION

In 1979, the Internal Revenue Service (the "Service") conducted an audit on the 1977 and 1978 tax returns of Mr. Richard Robidoux ("Robidoux"). Subsequent to completing the audit, the Service prepared an audit report in which it determined that Robidoux owed $2,044,984.06 in past due taxes for these years.¹ In 1981, Robidoux's creditors placed him in involuntary bankruptcy. Upon notice of Robidoux's bankruptcy status, the Service filed a proof of claim against the Robidoux estate for the allegedly delinquent taxes. In December, 1987, Robidoux filed a Motion to Determine Tax Liability in the Bankruptcy Court. Upon hearing the evidence, the Bankruptcy Court took a somewhat different view from that of the Service and found that, far from owing the Service over $2,000,000, in fact the Service owed Robidoux a refund of $848.57. Following up his victory, Robidoux requested an award of attorney's fees pursuant to 26 U.S.C. sec. 7430 (1989).² On February 22, 1989, the Bankruptcy Court held that the position of the Service in claiming $2,044,984.06 in back taxes was not substantially justified and granted Robidoux's motion for attorney's fees. On March 9, 1989, the Service submitted a motion to alter or amend the award of attorney's fees. The Bankruptcy Court denied the motion on March 21, 1989. Pursuant to Bankruptcy Rule 8001(a), the Service appeals the order awarding attorney's fees to this Court. Jurisdiction in this case is granted by 28 U.S.C. sec. 158 (1989).

I. Factual Background.

This Court need not rehearse the comprehensive findings and rulings of the Bankruptcy Court and, instead, sets forth below only the data necessary to an understanding of the issues presently before it. The first relevant run-in between Robidoux and the Service commenced prior to 1977 when the Service initiated a criminal investigation against him, alleging that he had made an illegal disposition of a Small Business Loan. At the time of the criminal investigation, Robidoux owned two corporations: United Chevrolet, Inc. ("Chevrolet") and United Venture, Inc. ("Venture"). Venture received a Small Business Loan from the United States Government and in turn made a loan of a substantial portion of the funds to Chevrolet. The Service subpoenaed all of the financial records, including all the tax returns and accountant's work papers, of Robidoux and his two corporations. Both Robidoux and the two corporations complied with the subpoena. The Service subsequently lost the records turned over to it.

When Robidoux was called upon to defend the tax deficiency claim at issue in the bankruptcy proceedings, he attempted to obtain copies of the records previously subpoenaed by the Service. Of course, Robidoux was unable to obtain these records through discovery because the Service had lost them. The Bankruptcy Judge commented dryly that "the trial was hampered by the fact that records of the Debtor and his corporations . . . were largely unavailable." In re Robidoux, No. 4-80-00738-G, slip op. at 3 (Bankr.D.Mass. Sept. 1, 1988).

Accordingly, Robidoux's evidence at trial in the Bankruptcy Court consisted primarily of his own testimony and that of the accountant, Terence J. Shepherd, who prepared Robidoux's individual and corporate tax returns for the years in question. Mr. Shepherd testified, and the Bankruptcy Court found, that all of the deductions for expenses and losses on Robidoux's tax returns were based on documentation and were supported. The Service presented no evidence to rebut or contradict Mr. Shepherd's testimony. Indeed, having lost the relevant records, it is difficult to see what evidence the Service might have adduced. The Bankruptcy Court found that the loan between the two companies was used for business purposes and had not been misappropriated for personal use. The court stated that the Service failed to introduce any evidence of personal use of the loan funds transferred between the two corporations, a major portion of the alleged tax deficiency.³ Finally, the Service's claim that Robidoux wrongfully deducted a rental loss from his income because he did not own legal title to certain property was rejected by the Bankruptcy Court because that court found that Robidoux owned equitable or beneficial title.⁴

In ruling on the issue of attorney's fees, the Bankruptcy Court found that the Service's claim of tax deficiency was primarily based on the alleged misappropriation of an intercompany loan. The court noted that the Service had planned to admit as evidence of the misappropriation a certain guilty plea of Robidoux made as a result of the criminal investigation concerning this loan. The Bankruptcy Court, however, held the plea inadmissible.

II. Discussion.

The Bankruptcy Court found that Robidoux had exhausted all of the administrative remedies available within the Service and held that the position adopted by the Service was not substantially justified under 26 U.S.C. sec. 7430(b)(2) and (c)(4)(A). In re Robidoux, slip op. at 1, 3 (Bankr.D. Mass. February 22, 1989).⁵ It thereupon awarded Robidoux attorney's fees in an amount totalling $79,891.53.

Typically, the "reasonable litigation costs" available under the statute are limited to a maximum of $75 an hour. 26 U.S.C. sec. 7430(c) (1989). Here, the Bankruptcy Court awarded fees averaging approximately $137 an hour, stating that the higher amount was warranted based on: "(i) an increase in the cost of living since the 1986 amendment to 26 U.S.C. sec. 7430, (ii) the limited availability of qualified attorneys for this proceeding, (iii) the completely unfounded nature of the government's claim, in both fact and law, (iv) the failure of the government to introduce any relevant evidence at the trial, and (v) the government's conduct in subpoenaing and then losing the Debtor's records. . . ." Id. at 4 (emphasis in original).

A. Exhaustion.

In order to exhaust administrative remedies as required by section 7430, a party must (1) participate in person or by a qualified representative in an Appeals Office Conference, and (2) provide the Appeals Office with a reasonable amount of time to consider the tax matter, or, if no Appeals Office Conference is granted, (a) request an Appeals Office Conference, (b) file a written protest, and (c) agree to give the Appeals Office a reasonable amount of time to consider the tax matter. 26 C.F.R. sec. 301.7430-1(b) (1989). The regulation goes on to explain that a person participates in an Appeals Office Conference when the individual or his representative presents to the Appeals Office all relevant information regarding the party's tax matter. Id. at (b)(2). The Bankruptcy Court found that prior to the litigation for tax deficiency, Robidoux had exhausted his administrative remedies available within the Service. In re Robidoux, slip op. at 1 (Bankr.D.Mass. February 22, 1989). The Service argues that the Bankruptcy Court erred in finding exhaustion.

This Court reviews the factual findings of the Bankruptcy Court only to determine whether any of those findings are "clearly erroneous." Bankr.R. 8013; Fed. R.Civ.P. 52(a). See also Pierce v. Underwood, 487 U.S. 552, 558, 108 S.Ct. 2541, 101 L.Ed.2d 490 (1988). This standard of review is identical to that employed by a court of appeals in reviewing the fact-findings of a district court, viz., "if the district court's account of the evidence is plausible in light of the record viewed in its entirety, the court of appeals may not reverse it even though convinced that had it been sitting as the trier of fact, it would have weighed the evidence differently." Anderson v. Bessemer City, 470 U.S. 564, 573-74, 105 S.Ct. 1504, 1511-12, 84 L.Ed.2d 518 (1985). If the evidence permits two contrasting views, a factfinder's choice of one view over the other can never be clearly erroneous. Id. at 574, 105 S.Ct. at 1512 (citations omitted). The Supreme Court also made clear that this standard of review applies to all types of factfinding, not only factfinding which is based on the credibility of a witness. Id.

At the hearing on the motion requesting the award of attorney's fees, Robidoux submitted an affidavit of Mr. Robert Charron, his accountant. The affidavit stated that Mr. Charron had participated in an Appeals Office Conference sometime after February 1981 and that Mr. Charron had revealed in the conference "all relevant tax information concerning Mr. Robidoux's 1977 and 1978 income tax returns." Affidavit of Mr. Robert Charron, December , 1988, paras. 4, 5.⁶ This was the only relevant information before the Bankruptcy Court at the time of its order awarding attorney's fees on February 22, 1989. Five days later, on February 27, 1989, Mr. John Gouzoules, an Appeals Officer of the Service in Boston, executed an affidavit in which he stated that he remembered attending an Appeals Office Conference with Robert Charron. Declaration of John Gouzoules, Feb. 27, 1989, para. 2. Mr. Gouzoules' affidavit also states, however, that the conference pertained to the tax matters of Venture, one of the companies owned by Robidoux. Id. at para. 2. Mr. Gouzoules did not recall ever attending an Appeals Office Conference involving Robidoux's personal tax liability. Id. at para. 3.

The Service argues that Mr. Gouzoules' affidavit should be considered before concluding that Robidoux exhausted his administrative remedies. Were the Bankruptcy Court to have considered the statements in Mr. Gouzoules' affidavit, the Service argues that it should have given those...