Opinion
14870-20 14875-20
06-03-2024
MICHAEL DAVIS & AMY L. DAVIS ET AL.,[1] Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Christian N. Weiler, Judge
This case involves a charitable contribution deduction claimed by D&G Acquisition, LLC (D&G) for its donation of a conservation easement. On October 27, 2022, the parties filed a First Stipulation of Facts in these cases.
On March 6, 2024, petitioners filed a Motion to Strike the Second Sentence of Stipulation No. 12 of the First Stipulation of Facts (Motion to Strike). Respondent filed a Response to Motion to Strike the Second Sentence of Stipulation No. 12 of the First Stipulation of Facts on April 3, 2024. On April 16, 2024, this Court granted petitioners' Motion to Strike, relieving them from the binding effect of the second sentence of stipulation 12 under Rule 91(e) and striking the aforementioned stipulation from the record of these cases.
Rule references are to the Tax Court Rules of Practice and Procedure.
On May 16, 2024, respondent filed a Motion for Reconsideration of Order Granting Petitioners' Motion to Strike Part of Stipulation 12 (Motion for Reconsideration), alleging that this Court made four substantial errors of law or fact, which, according to respondent, conflict with our precedent and rules, and are contrary to holdings of the U.S. Court of Appeals for the Eleventh Circuit to which to these cases are appealable.
Background
The following facts are drawn from the pleadings and motion papers. The facts stated below are not findings of fact by this Court and are stated herein solely for the purpose of ruling on respondent's Motions for Reconsideration.
On February 9, 2024, respondent filed a Motion for Partial Summary Judgment, and on March 8, 2024, petitioners filed their Response. On April 3, 2024, respondent filed his Reply to petitioners' Response. In his Motion for Partial Summary Judgment respondent asks the Court to find that D&G held 9.92-acres of land in DeKalb County, Georgia, as inventory and therefore any charitable contribution deduction which D&G may be entitled to under the Internal Revenue Code is limited to D&G's adjusted basis in the property. Petitioners object to respondent's Motion for Partial Summary Judgment.
Respondent's Motion for Partial Summary Judgment cites to stipulation 12 from the parties' First Stipulation of Facts. Stipulation 12 states (in relevant part): "D&G Acquisition treats the Property as inventory." On March 6, 2024, petitioners filed a Motion to Strike the quoted sentence from the First Stipulation of Facts. On April 3, 2024, respondent filed his Response to petitioners' Motion to Strike.
The preamble to the First Stipulation of Facts states that "[a]ll stipulated facts shall be conclusive." Rule 91(a)(1) states that parties have a requirement to stipulate to "all matters not privileged that are relevant to the pending case" including facts, opinions, and "application[s] of law to fact." Rule 91(e) discusses the binding effect of a stipulation. A stipulation is generally treated as a conclusive admission by the parties. However, under Rule 91(e), this Court may allow a party to qualify, change, or contradict a stipulation if "justice requires."
Prior to filing their Motion to Strike, petitioners' newly enrolled lead counsel emailed respondent's counsel seeking to make five changes to the First Stipulation of Facts, including revisions to paragraphs 5, 10, 12, and 15. Regarding stipulation 12, Mr. Sharkey requested that the second sentence of paragraph 12 be deleted. Respondent declined to make the requested revision to stipulation 12. Then on March 6, 2024, petitioners filed a Motion to Strike, seeking the deletion of the second sentence to paragraph 12 from the First Stipulation of Facts.
On or about May 18, 2023, Ross Sharkey enrolled as counsel of record in each of these consolidated cases and serves as petitioners' lead counsel. Prior to Mr. Sharkey's enrolling as counsel of record, petitioners' were represented by Matthew Paolillo in each of these consolidated cases.
Petitioners, in their Motion to Strike, contend the Court should exercise its broad discretion. Petitioners further contend justice requires that they be relieved from the second sentence in stipulation 12 because it is contrary to the evidence, an unsupported legal conclusion, and the product of inappropriate litigation tactics by respondent's counsel. Petitioners' original counsel acknowledges that the second sentence of stipulation 12 is incorrect and that he did not intend to stipulate to petitioners' tax treatment of the property in question as inventory when he signed the First Stipulation of Facts.
On April 16, 2024, we granted petitioners' Motion to Strike.
Discussion
I. Legal Standard for a Motion for Reconsideration
Rule 161 allows for motions for reconsideration of an opinion or findings of fact, and deciding whether to grant a motion for reconsideration lies within the discretion of the Court. See CWT Farms, Inc. v. Commissioner, 79 T.C. 1054, 1057 (1982). Although Rule 161 is in title XVI, which addresses posttrial proceedings, such motions may be filed with regard to interlocutory orders. See Bedrosian v. Commissioner, 144 T.C. 152, 156 (2015).
Under Rule 161, reconsideration is intended to correct substantial error, either of fact or law, and facilitates the introduction of new evidence the moving party could not have previously introduced with due diligence. See, e.g., Estate of Quick v. Commissioner, 110 T.C. 440, 441 (1998). However, reconsideration is not the appropriate forum for rehashing previously rejected legal arguments or for tendering new legal theories to reach the end result desired by the moving party. See id. at 441- 42.
We conclude that reconsideration is inappropriate here. Respondent's arguments in his Motion for Reconsideration were previously considered by the Court. Furthermore, it is irrelevant whether this Court's Order does or does not specifically address all of respondent's arguments since we are under no obligation to address every argument raised by a party. Accordingly, we will deny respondent's Motions for Reconsideration.
In his Motion for Reconsideration, respondent moves pursuant to Rule 50(a). While Rule 50 concerns the general requirements for a motion being filed with this Court, as discussed above, Rule 161 addresses motions for reconsideration.
Notwithstanding our ruling, we will provide clarification to our April 16, 2024, Order. II. Analysis
The stipulation process is the bedrock of Tax Court Practice. Branerton Corp. v. Commissioner, 61 T.C. 691, 692 (1974). Because this Court sees a high number of cases each year, we use the stipulation process to encourage settlement and streamline trials by requiring parties to "stipulate, to the fullest extent to which complete or qualified agreement can or fairly should be reached, all matters not privileged that are relevant to the pending case . . . ." Rule 91(a). Essential to that mandate is the "voluntary exchange of necessary facts, documents, and other data between the parties . . . ." Branerton Corp., 61 T.C. at 692. The process works since the parties are bound by the stipulations. Rule 91(e). Accordingly, we "will not permit a party to a stipulation to qualify, change, or contradict a stipulation . . . [unless] justice requires." Id. (emphasis added).
With "justice" as our guiding principle, we do have broad discretion to determine when it is appropriate to set aside a stipulation. Blohm v. Commissioner, 994 F.2d 1542, 1553 (11th Cir. 1993), aff'g T.C. Memo. 1991-636; Estate of Eddy v. Commissioner, 115 T.C. 135, 137 n.4 (2000). However, a court's discretion is tempered by the importance of making stipulations stick; therefore, we enforce stipulations unless not just "injustice," but "manifest injustice" would result. See Bokum v. Commissioner, 992 F.2d 1132, 1135-36 (11th Cir. 1993), aff'g 94 T.C. 126 (1990).
We treat pretrial stipulations of facts different from settlement stipulations. Settlement stipulations are regarded as a "mutual contract by which each party grants to the other a concession of some rights as a consideration for those secured and the settlement stipulation is entitled to all of the sanctity of any other contract" and require proof of mutual mistake, coercion, duress or some other contractual defenses before we would choose not to enforce them. Saigh v. Commissioner, 26 T.C. 171, 177 (1956); Lovenguth v. Commissioner, T.C. Memo. 2007-70, 2007 WL 922231, at *3.
In Stamm Intl. Corp. v. Commissioner, 90 T.C. 315, 321 (1988), we noted that "more stringent standards" should be applied to a motion to vacate a settlement agreement than to a pretrial stipulation of facts. However, we do allow relief from both types of stipulations under general principles of contract law, see Mathia v. Commissioner, T.C. Memo. 2007-4; Markin v. Commissioner, T.C. Memo. 1989-665, but the plain language of our rule governing pretrial stipulations-allowing this Court to grant relief from stipulations if justice requires-permits us to consider factors that might not be sufficient to upset a contract. See Lovenguth v. Commissioner, 2007 WL 922231, at *4.
Courts consider various factors in deciding whether to release a party from a stipulation such as when the stipulation is contrary to facts brought out at trial, see Blohm, 994 F.2d at 1553; Jasionowski v. Commissioner, 66 T.C. 312, 318 (1976), and whether both sides were represented by counsel when agreeing to the stipulation, see, e.g., Associated Beverages Co. v. P. Ballantine & Sons, 287 F.2d 261, 263 (5th Cir. 1961); Jenkins v. Commissioner, T.C. Memo.1988-326. Another factor courts consider is whether the party opposing a motion for relief from stipulations can point to evidence that has been lost or to arguments that might have been made but no longer can be. Courts are thus more unlikely to grant relief from stipulations when the request is made for the first time in a posttrial brief, see La. Land & Exploration Co. v. Commissioner, 90 T.C. 630, 649 (1988), or on appeal, see United States v. 3,788.16 Acres, 439 F.2d 291, 296 (8th Cir. 1971).
Even if a party was represented during the drafting of stipulations and if prejudice would result from granting the relief sought, there still remains the question of whether the stipulations were entered into after careful negotiations or though inadvertence or honest lack of ability. Lovenguth, 2007 WL 922231, at *4. Courts are unlikely to grant relief from stipulations that result from "considerable negotiation," Associated Beverages Co., 287 F.2d at 263, or stipulations which were "negotiated extensively," Markin, T.C. Memo. 1989-665. However, when a party has stipulated inadvertently and honestly, courts may justifiably grant him relief. See, e.g., United States v. Montgomery, 620 F.2d 753, 757 (10th Cir. 1980); Jenkins, T.C. Memo.1988-326.
The First Stipulation of Facts, which includes the second sentence of paragraph 12, is a pretrial stipulation. Therefore, petitioners were not required to show proof of mutual mistake, coercion, duress, or some other contractual defense before we struck the second sentence of paragraph 12 from the record in each of these consolidated cases. Moreover, on the basis of our review of the record, we cannot say that the second sentence of paragraph 12 was the product of "considerable negotiation" or that it was "negotiated extensively." See Associated Beverages Co., 287 F.2d at 263; Markin, T.C. Memo. 1989-665. While respondent is correct in his assertion that the stipulation process is the "[b]edrock of Tax Court practice," nothing in our rules requires or is intended to have a party stipulate himself out of court.
This case involves respondent's disallowance of a claimed charitable contribution deduction of $2,510,000 for D&G's granting of a conservation easement to the Southern Conservation Trust, Inc. Respondent avers that petitioners "did in reality treat the [p]roperty as inventory . . . lead[ing] to only one legal conclusion- that an deduction is limited to basis [of approximately $48,133]." Despite respondent's lamentation that setting aside the second sentence of paragraph 12 would force him to "undertake significant discovery and more trial preparations, call more witnesses, extending trial, and spend more resources on briefing," we believe that-on the specific facts of these cases-failure to allow petitioners to litigate the issue of whether the donated property was inventory in D&G's hands would result in "manifest injustice." See Bokum, 992 F.2d at 1135. Therefore, we remain firm in our conviction that "justice requires" us to free petitioners from the binding effect of the second sentence of paragraph 12 of the First Stipulation of Facts. See Rule 91(e).
Lastly, respondent's concern that we have "created a new standard for stipulations executed by represented parties" is unjustified since our ruling is binding only these consolidated cases and is formed on the basis of the specific facts presented here.
Upon due consideration of the foregoing, it is
ORDERED that respondent's Motion for Reconsideration of Order Granting Petitioners' Motion to Strike Part of Stipulation 12, filed on May 16, 2024, is denied.