We welcome back frequent guest blogger, Carl Smith. Carl writes about the ongoing litigation seeking an answer to the status of the Tax Court within our constitutional framework and other issues spun out by Freytag. Keith
In Freytag v. Commissioner, 501 U.S. 868 (1991), the Supreme Court held that the Appointments Clause did not prohibit the Tax Court’s Chief Judge from appointing Special Trial Judges because the Tax Court was one of the “Courts of Law” mentioned in the Clause and because the Chief Judge could act for the Tax Court. In reaching these rulings, the Supreme Court made subsidiary holdings that have puzzled the lower courts. Two subsidiary holdings in particular are being disputed currently in the Courts of Appeals:
First: Did the Supreme Court’s observation that Tax Court Special Trial Judges can enter final decisions in some cases under what is today § 7443A(b)(7) mean that, in order to be an “Officer” of the United States subject to the Appointments Clause procedures (as opposed to being a mere employee), a government worker must have the power to enter final rulings on behalf of the government?
Second: Subsidiary to its holding that the Tax Court was one of the Courts of Law, in which, if any, Branch of the federal government did the Supreme Court place the Tax Court?
This brief post tells the reader where and when the Freytag subsidiary holdings are currently being litigated in the Courts of Appeals.read more...
Who is an Officer?
As to the first subsidiary issue – the finality of rulings to be an Officer – in 2000, the D.C. Circuit in Landry v. FDIC, 204 F.3d 1125, held that Freytag required that Officers have final ruling authority, and since FDIC ALJs did not have such authority, FDIC ALJs need not be appointed under the Appointments Clause. Relying on Landry, the Tax Court in Tucker v. Commissioner, 135 T.C. 114, 165 (2010), affd. on different reasoning 676 F.3d 1129 (D.C. Cir. 2012), held that because rulings by Appeals in CDP are not “final” (according to the Tax Court), Appeals Team Managers and Settlement Officers conducting CDP hearings need not be appointed, either. Also relying on Landry, the D.C. Circuit last year in Raymond J. Lucia Cos., Inc. v. SEC, 832 F.3d 277, held that because SEC ALJs do not exercise final authority (the SEC does), SEC ALJs do not need to be appointed.
I have reported on the fight over the constitutionality of the lack of appointment of SEC ALJs and its possible impact on whether ALJs borrowed by the Treasury to hold Circular 230 sanctions hearings need to be appointed, as well, in several blog posts (here, here, here, and here). In my most recent post, I noted that the Tenth Circuit in Bandimere v. SEC, 844 F.3d 1168 (Dec. 27, 2016), rejected Landry and held that Freytag does not require that a federal worker exercise final ruling authority before having to be appointed under the Appointments Clause, and so SEC ALJs, because of their extensive judge-like powers on important topics, needed to be appointed. I predicted that this Circuit split over SEC ALJs would shorty end up before the Supreme Court.
Well, I was at least premature. The D.C. Circuit is trying to avoid the Circuit split. Instead, on May 24, it will rehear Lucia en banc over the issues of whether Landry misinterpreted Freytag and whether the D.C. Circuit should overrule Landry in favor of the Bandimere holding.
As an aside for those interested in separation of powers issues, the D.C. Circuit that day will also rehear en banc the earlier panel holding that the Consumer Financial Protection Bureau is not constitutionally formed because the Bureau is headed only by a single Director. PHH Corp. v. CFPB, 839 F.3d 1 (Oct. 11, 2016) and 2017 U.S. App. LEXIS 2733 (Feb. 16, 2017) (“If the en banc court, which has today separately ordered en banc consideration of Lucia v. SEC, 832 F.3d 277 (D.C. Cir. 2016), concludes in that case that the administrative law judge who handled that case was an inferior officer rather than an employee, what is the appropriate disposition of this case?”).
In Which Branch is the Tax Court Located?
As to the issue in Freytag about the Branch in which the Tax Court is located, this issue has come up in litigation over the validity of the President having a removal power over Tax Court judges in § 7443(f). In Kuretski v. Commissioner, 755 F.3d 929 (D.C. Cir. 2014), cert denied 135 S. Ct. 2309 (2015) (on PT last blogged here and here, the D.C. Circuit found that there was no interbranch removal separation of powers issue because the Tax Court, like the President, was located in the Executive Branch – and Freytag’s language was not to the contrary. In Battat v. Commissioner, 148 T.C. No. 2 (Feb. 2, 2017), the Tax Court recently rejected Kuretski’s holding that the Tax Court per Freytag was part of the Executive Branch and instead held that per Freytag the Tax Court was located somewhere else (though the Tax Court wouldn’t say exactly where). Still, the Tax Court in Battat felt that the removal power, even though interbranch, did not run afoul of the separation of powers doctrine because the Tax Court doesn’t decide cases that could be heard by courts at common law.
In a recent post, I noted that Joe DiRuzzo and his firm had a number of cases in which the removal power issue was challenged pre-trial (as in their Battat case). Joe had sought permission from the Tax Court for interlocutory appeals under § 7482(a)(2)(A), but the Tax Court had refused to authorize interlocutory appeals. Well, Joe doesn’t easily take “no” for an answer. And in light of the fact that the Tax Court said it only could decide the removal power issue under the rule of necessity – since all of its judges were inherently implicated and biased by the potential validity of the removal power – I don’t blame Joe for not taking a “no” from the Tax Court this time. He has in fact appealed four of his firm’s cases that present the Battat issue, on an interlocutory basis, to three different Courts of Appeals: Teffeau v. Commissioner, Tax Court Docket No. 27904-10, Fourth Cir. Docket No. 17-1463 (opening brief due May 22); Elmes v. Commissioner, Tax Court Docket No. 22003-11, Eleventh Cir. Docket No. 17-11648 (opening brief due May 22); Thompson v. Commissioner, Tax Court Docket No. 6613-13, Ninth Cir. Docket No. 17-71027 (opening brief due June 29); and Battat v. Commissioner, Tax Court Docket No. 17784-13, appealed to the Eleventh Circuit, but no docket number yet available from the Eleventh Circuit. Interestingly, Joe had moved to invalidate the notice of deficiency in Elmes under the reasoning of Scar v. Commissioner, 814 F.2d 1363 (9th Cir. 1987), but that motion was denied in an order (found here: https://www.ustaxcourt.gov/UstcDockInq/DocumentViewer.aspx?IndexID=7089658) issued on April 17, 2017 – several days after Joe appealed the case to the Eleventh Circuit.
We will keep you updated on developments in all of these Freytag-related appeals.