Powell v. U.S.
| Citation | 849 F.2d 1576 |
| Decision Date | 29 July 1988 |
| Docket Number | No. 87-1714,87-1714 |
| Parties | L. Earl POWELL, Jr., and Estate of Lela B. Powell, Deceased, L. Earl Powell, Jr., Executor, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee. |
| Court | United States Courts of Appeals. United States Court of Appeals (5th Circuit) |
Michael W. Stucker, Garland, Tex., for plaintiff-appellant.
Ann B. Durney, Michael L. Paup, Chief, Appellate Sec., Dept. of Justice, Michael C. Durney, Acting Asst. Atty. Gen., William S. Rose, Jr., Gary R. Allen, Howard M. Soloman, Asst. Attys. Gen., Washington, D.C., for defendant-appellee.
Appeal from the United States District Court for the Northern District of Texas.
Before CLARK, Chief Judge, GOLDBERG and GARWOOD, Circuit Judges.
On the scheduled trial date, at a pretrial conference, the district court judge first gave plaintiffs notice that he might enter summary judgment. Several hours later, when the lawyers returned to pick the jury, they were informed that the judge had decided to enter a sua sponte summary judgment for the government. Because settled precedent in this circuit bars entry of summary judgment without the ten days notice mandated by Fed.R.Civ.P. 56(c), we reverse and remand.
L. Earl Powell, Jr. and the estate of his deceased wife, (the "Taxpayers"), seek a refund of $17,458.00 of federal income taxes paid for their 1977 tax year. 1 The Taxpayers allege that they are entitled to this refund because the Internal Revenue Service erred by including $53,400.00 of bonus income in their 1977 taxable income.
During 1977, L. Earl Powell, Jr., ("Powell") was President of American Hatch Corporation, a subsidiary of Gail E. Cooper, Inc. In August 1977, Powell was told that American Hatch would pay him a bonus of $68,400.00. On or before August 10, 1977, in connection with this bonus, Powell was required to give his employer his personal check for $68,400.00. Powell, however, did not have sufficient funds in his personal account to cover this check. The corporations' controller then deposited cashier's checks totalling $73,400.00 in Powell's personal checking account. 2 The $5,000.00 difference between the check Powell gave his employer and the cashier's checks was his salary for the month of August 1977.
The next day, August 11, 1977, Powell gave his employer a cashier's check for $68,400.00. In return he received the $68,400.00 check that he had written on his personal account and a promissory note from Gail E. Cooper, Inc. The promissory note, dated August 11, 1977, was in the amount of $68,400.00 and provided for payments of $5,000.00 per month. Powell received payments totalling $15,000.00 during the remaining months of 1977.
In June 1978, American Hatch Corporation filed for bankruptcy. The Taxpayers filed a proof of claim in the bankruptcy proceeding for the $53,400.00 balance remaining on the note. Although Gail E. Cooper, Inc., the obligor on the note, never filed for bankruptcy the Taxpayers have not received any additional payments on the promissory note.
On their 1977 individual income tax return, the Taxpayers reported the entire $68,400.00 bonus as income. The Taxpayers, however, later contended that only the $15,000.00 that they received in payments on the note should have been income. The difference between the $68,400.00 reported and the $15,000.00 received as note payments is the $53,400.00 in dispute.
This case was set for a jury trial at 1:30 p.m. on June 4, 1987. On the morning of June 4, 1987, the district court judge met with the parties' attorneys. The judge told the attorneys that he scheduled the conference to "make sure that [he] understood fully the extent of uncontested facts in this case." The judge established that the parties did not dispute the exchange of checks and Powell's receipt of the promissory note. The district court judge then said "the reason I invited you to appear so we could have a discussion on the record, is whether or not the Government is entitled to judgment as a matter of law on those undisputed facts."
The Taxpayers' attorney responded that he believed there was a dispute as to whether Powell was required to give the initial check to his employer before receiving the bonus.
The district court judge continued:
Make your best pitch to me to make sure I understand ... as to why the factual scenario that you have outlined has legal significance or consequence as far as removing this from a matter of law question.... Assuming that you are exactly correct regarding the transaction and what happened, the exchange of the checks, they got his personal check, they held it, they gave him the checks and then the note followed and then he got payments under the note. Articulate for me your view as to why that factual scenario, assuming it is true, removes this from purely a legal question.
The Taxpayers' attorney responded that, given certain additional assumptions regarding the fair market value of the note, he believed that the Taxpayers were entitled to judgment as a matter of law. The district court judge then asked the government's attorney why the government had not filed a motion for summary judgment. The judge concluded the conference without announcing any decision. He said:
We have the jury panel at one thirty. If I could meet with you say ten minutes before that time. We will either proceed with the trial before the jury or not at that time.
The district court judge did not hold the scheduled trial that afternoon. Instead, when the attorneys returned to court for the trial they were told that the judge had decided to enter summary judgment for the government. 3
On August 18, 1987, the district court judge entered the sua sponte summary judgment for the government. The district court held that, as a matter of law, Powell's receipt of the cashier's checks was income under 26 U.S.C. Sec. 61. The district court further found that, after receiving the $68,400.00 bonus, Powell loaned the bonus to Gail E. Cooper, Inc.
Fed.R.Civ.P. 56 governs summary judgment. Rule 56(a) provides for a summary judgment motion by a claimant. 4 Rule 56(b) provides for a summary judgment motion by a defending party. 5 Rule 56 does not speak to summary judgment on the court's own motion. 6 Rule 56(c) governs service of a summary judgment motion and proceedings on the motion:
The motion shall be served at least 10 days before the time fixed for the hearing. The adverse party prior to the day of hearing may serve opposing affidavits. The judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. A summary judgment, interlocutory in character, may be rendered on the issue of liability alone although there is a genuine issue as to the amount of damages.
This court has strictly enforced the ten day notice requirement of Rule 56(c). 7 The district judge did not comply with this requirement. We begin with a review of the notice requirement and conclude with discussion of whether the error was, in this case, harmless.
This court has explained that the strict enforcement of the notice requirement is necessary because a summary judgment is a final adjudication on the merits. Underwood v. Hunter, 604 F.2d 367, 369 (5th Cir.1979). Since a summary judgment forecloses any future litigation of a case the district court must give proper notice to insure that the nonmoving party had the opportunity to make every possible factual and legal argument. 8
In this case, the Taxpayers had only a few hours notice that the district court was considering entry of summary judgment against them. This was surely not sufficient time to allow the Taxpayers counsel to submit all of its legal and factual arguments. Although Taxpayers counsel was, presumably, prepared to go to trial, preparation for trial is very different from that required to oppose a summary judgment motion. See Gutwein v. Roche Laboratories, 739 F.2d 93 (2d Cir.1984). Although more than two months passed between the scheduled trial date when the parties were advised that the district court had decided to enter judgment for the government and the actual entry of the judgment, this time cannot substitute for notice before the court's decision. 9
In Norman v. McCotter, 765 F.2d 504 (5th Cir.1985), this court held that failure to give a habeas corpus petitioner notice and an opportunity to be heard before entry of summary judgment constituted harmless error. Id. at 508. The court based the harmless error finding on its review of the petitioner's affidavit, filed for the first time in this court. 10 Because we do not have the affidavits or other information that the Taxpayers would have submitted to the district court we cannot make a harmless error finding in the same way that the Norman court did.
In Western Fire Insurance Co. v. Copeland, 786 F.2d 649 (5th Cir.1986), the court, citing Norman, noted that the harmless error doctrine applies to lack of the notice required by Rule 56(c). The Western Fire court said that the trial court should generally evaluate the nonmoving party's evidence on a motion for summary judgment before the appellate court does so. Id. at 653 n. 4. The court then reversed the summary judgment concluding, on the basis of a limited evidentiary record, that "[w]hile we do not decide whether disputed questions of fact appear in the record before us, it is clear that if plaintiffs had been given ten days to answer defendants' contentions, they might have avoided the result reached [in the trial court]." Id. at 653 (quoting Hanson v. Polk County Land, Inc., 608 F.2d 129, 131 (5th Cir.1979)).
Because the precedent on application of the harmless error...
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Maryland Register, Volume 41, Issue 21, October 17, 2014
...the District Court to enter summary judgment on its own initiative, provided it gives adequate notice to the parties. See Powell v. U.S., 849 F.2d 1576, 1582, n.6 Cir. 1988). At one time, the Maryland Rules permitted that as well, but not since 1984. See Hartford Ins. Co. v. Manor Inn, 335 ......
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Maryland Register, Volume 41, Issue 21 , October 27, 2014
...the District Court to enter summary judgment on its own initiative, provided it gives adequate notice to the parties. See Powell v. U.S., 849 F.2d 1576, 1582, n.6 Cir. 1988). At one time, the Maryland Rules permitted that as well, but not since 1984. See Hartford Ins. Co. v. Manor Inn, 335 ......