Marre v. U.S.
| Decision Date | 29 November 1994 |
| Docket Number | 93-2291,Nos. 92-2962,s. 92-2962 |
| Citation | 38 F.3d 823 |
| Parties | -7050, 94-2 USTC P 50,615 Richard L. MARRE, Plaintiff-Appellant, Cross-Appellee, Agritech Enterprises, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee, Cross-Appellant. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Edward D. Urquhart, Silvia T. Hassell, Charles J. Escher, Urquhart & Hassell, Houston, TX, for appellants.
Stuart D. Gibson, Trial Atty., Gary R. Allen, Chief Appellate Counsel, Robert L. Baker, Teresa E. McLaughlin, Gilbert S. Rothenberg, Thomas J. Clark, Tax Div., U.S. Dept. of Justice, Washington, DC, for appellee.
Appeals from the United States District Court for the Southern District of Texas.
Before REAVLEY, DAVIS and DeMOSS, Circuit Judges.
Richard L. Marre ("Marre") and Agritech Enterprises, Inc. ("Agritech") sued the United States under 26 U.S.C. Sec. 7431 for wrongful disclosure of tax return information. The district court awarded statutory damages and attorney's fees to Marre. Marre and Agritech appeal the district court's damage award to Marre and its rejection of Agritech's claim. The government cross appeals the amount of attorney's fees awarded by the district court. For reasons that follow, we affirm in part, vacate in part and remand for further proceedings.
In 1981, Marre founded Agritech Enterprises, Inc. ("Agritech") to build solar-heated greenhouses in Ellis and Waller Counties, Texas. The greenhouses were sold as tax shelters to limited partnerships and individual investors. Most of the limited partnerships were formed by financial planners in California, who served as general partners.
In 1985, Internal Revenue Service ("IRS") Special Agent Lindell Parrish began a criminal investigation of both Marre and Agritech for allegedly aiding and assisting in the filing of false tax returns in violation of 26 U.S.C. Sec. 7206(2). The IRS believed that Marre had marketed the solar greenhouses as a tax shelter, sold the investors an interest in the greenhouses, and then failed to construct complete greenhouses. The IRS took the position that the deductions taken by the owners of the greenhouses for incomplete, nonfunctional greenhouses were fraudulent.
As part of the investigation, Parrish interviewed various Agritech investors, promoters, suppliers and employees. He also sent form letters, referred to as "circular letters," to the investors and certain suppliers. In the interviews and letters, Parrish disclosed that Marre and Agritech were under investigation by the Criminal Investigation Division of the IRS for allegedly aiding and assisting in the filing of false tax returns relative to the greenhouses. In the circular letters to the investors, Parrish also assured the investors that Marre was the sole target of the investigation and warned that any deductions taken for the greenhouses would be fraudulent. An attached questionnaire included two statements that indicated Marre had been dishonest with the investors in representing that he would furnish complete greenhouses.
Marre and Agritech sued the United States under 26 U.S.C. Sec. 7431, seeking damages for wrongful disclosures of tax return information. Following a bench trial, the district court found that Agent Parrish had made 215 unauthorized disclosures. These include: 88 disclosures via circular letters to the investors, 23 disclosures to Agritech suppliers, 10 disclosures to promoters, and 94 "other" disclosures. Neither party challenges these findings on appeal. The court further found that Marre suffered no actual damages and that it was precluded from awarding punitive damages in the absence of a compensatory damage award. The court awarded Marre statutory damages of $1000 per disclosure, or $215,000.
The court also held that Agritech was not entitled to damages because it had ceased doing business before the disclosures were made. It concluded that an award of damages to Agritech would amount to a double recovery for Marre, Agritech's sole owner. Finally, the court held that Marre was entitled to recover reasonable litigation costs, including attorney's fees, under 26 U.S.C. Sec. 7430. The court awarded Marre $326,182.62 in attorney's fees and costs.
Marre and Agritech appeal the district court's damage award to Marre and its rejection of Agritech's claim. The government cross-appeals the amount of attorney's fees awarded to Marre. The government also filed a motion to dismiss Marre and Agritech's appeal as premature.
As an initial matter, we address the government's motion to dismiss this appeal. The government contends that the district court's judgment never ripened into an appealable order because the district court did not formally resolve the Rule 59 motions Marre and Agritech filed after the court entered judgment. After the district court entered its final judgment in this case, Marre and Agritech filed a motion to alter or amend the judgment or, in the alternative, for a new trial. The court denied the motion in a written minute entry that was entered on the docket, but did not issue a written order denying the motion.
The government contends that the lack of a separate, written order renders the appeal premature under Fed.R.Civ.P. 58. While Rule 58 clearly requires the entry of a separate, written order, courts generally distinguish between the granting of a post-trial motion and the denial of a post-trial motion. When the court grants a post-trial Rule 59 motion, it affects the judgment, and its new ruling becomes the final judgment. As such, Rule 58 requires a written order. By contrast, the denial of a post-trial motion leaves the pre-existing judgment unaffected. Thus, there is no need to issue a new judgment.
The Seventh, Ninth and Eleventh Circuits have recognized this distinction and do not require a separate, written order for the denial of a post-trial motion. See Wright v. Preferred Research, Inc., 937 F.2d 1556, 1560-61 (11th Cir.1991), cert. denied, --- U.S. ----, 112 S.Ct. 915, 116 L.Ed.2d 815 (1992); Hollywood v. City of Santa Maria, 886 F.2d 1228, 1230-31 (9th Cir.1989); Charles v. Daley, 799 F.2d 343, 347 (7th Cir.1986). We agree with this approach and deny the government's motion to dismiss.
On the merits, Marre argues first that the district court erred in not awarding him actual damages for his alleged mental suffering. Marre maintains that he presented unrefuted evidence of mental suffering and emotional anguish that resulted from the unauthorized disclosures. Marre presented evidence that Parrish's disclosures damaged his reputation, caused him emotional stress which led to his divorce, and limited his future employment opportunities.
The district court found that
[t]he evidence of actual damages is simply not there. The demise of Agritech was pretty much a fait accompli long before Parrish began his rampage through the IRS regulations; the evidence shows that many months before the events complained of, Agritech's income had dried up and no more greenhouses were being sold; in fact, several investors had already sued Marre. Thus we cannot find that Parrish's misdeeds scuttled Marre's dreams of commercial success. Nor can we find that the collapse of Marre's marriage should be laid to Parrish's door.
We, of course, review findings of fact for clear error. See Anderson v. City of Bessemer City, N.C., 470 U.S. 564, 573, 105 S.Ct. 1504, 1511, 84 L.Ed.2d 518 (1985).
The district court did not find Marre's damage evidence sufficiently credible to support an award of actual damages. We give great deference to the trial court's credibility determinations, and "[w]here there are two permissible views of the evidence, the factfinder's choice between them cannot be clearly erroneous." Id. at 574, 105 S.Ct. at 1511. The district court did not err in denying Marre's claim for actual damages.
Marre argues next that the district court erred in holding that it was precluded from awarding punitive damages in the absence of actual damages. Section 7431(c) of the Internal Revenue Code provides:
(c) Damages--In any action brought under subsection (a), upon a finding of liability on the part of the defendant, the defendant shall be liable to the plaintiff in an amount equal to the sum of--
(1) the greater of--
(A) $1,000 for each act of unauthorized disclosure of a return or return information with respect to which such defendant is found liable, or
(B) the sum of--
(i) the actual damages sustained by the plaintiff as a result of such unauthorized disclosure, plus
(ii) in the case of a willful disclosure or a disclosure which is the result of gross negligence, punitive damages, plus
(2) the costs of the action.
26 U.S.C. Sec. 7431(c).
Marre contends that the plain language of the statute permits recovery of punitive damages in the absence of actual damages, so long as punitive damages exceed the subsection (1)(A) statutory damages. The government argues that the plain language of the statute links an award of punitive damages to a finding of actual damages, in keeping with the common law rule that punitive damages may not be awarded in the absence of actual damages. See, e.g., 1488, Inc. v. Philsec Inv. Corp., 939 F.2d 1281, 1291 (5th Cir.1991).
We leave undecided the statutory interpretation question because we are convinced that the evidence is not sufficient to support a punitive damage award even if recoverable. The statute authorizes a punitive damage award only if the disclosures are willful or grossly negligent. To resolve this question, our task is to determine whether the record would support a finding that Parrish made the disclosures without ground for believing that they were lawful or with a reckless disregard of Marre and Agritech's rights. See Rodgers v. Hyatt, 697 F.2d 899, 906 (10th Cir.1983); Malis v. United States, 59 A.F.T.R.2d 87-988, 1986 WL 15721 (C.D.Cal.1986). While the record supports, and the government...
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