Speeding Up Settlement: Some ABA Conference Inspired Thoughts

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An infant with black hair, dark eyes, and pink skin lies swaddled on his back in a crib, gazing into the distance.

Welcome, baby Henrick! While the arrival of Henrick Bruce Smith prevented Caleb’s in-person attendance at the ABA Tax Section’s May Meeting, thanks to the hybrid meeting format Caleb was able to participate remotely and today he offers a blog post spurred by the discussion. Those who registered for the meeting can watch recordings of the sessions for 90 days on the Cvent platform. Related to today’s post, the Pro Bono & Tax Clinics session also included a panel discussing pleadings and possibilities for earlier settlement of cases.

For the first time in two years, the ABA Tax Section had its annual May meeting in-person. Nonetheless, as my son was approximately two days old at the start of the conference, I opted to attend virtually.

In the Pro Bono & Tax Clinics panel, “Tax Court Updates: The View from the Bench,” I recall hearing a comment about how the Tax Court doesn’t know when “settlement days” are occurring, and that there isn’t really much of an opportunity for the Tax Court to play a larger role in that process. It is entirely possible that in the throes of sleep deprivation I misconstrued something that was said: feel free to fact-check me with the recordings of the panels as they are made available. In any event, dreamt or not, the comment got me thinking: are there ways the Tax Court could get more involved with facilitating settlement?

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Let’s begin with a statement of the issue. The issue isn’t that Tax Court cases don’t often settle. The issue is that Tax Court cases don’t often settle as quickly as they could or should. Quick and efficient settlement is key to tamping down the rather large number of docketed cases the Tax Court is presently wrestling with.

As detailed in Keith’s post and the NTA statistics, it is possible that IRS Appeals shares some blame for cases that should have been settled much earlier but linger on the docket. It is also likely that the parties, absent the Tax Court’s prodding, could do more to speed up resolution of the cases. But since people (myself included) are generally loathe to take on extra work, Tax Court prodding may just be what’s needed. How might the Tax Court prod parties into engaging in settlement talks at an earlier stage?

In thinking over this issue, I thought about my experience with other courts.

I have been tax-focused pretty much from day one of my legal career (it’s why I went to law school). However, one day in my 2L year I was pulled from my tax clinic work and asked to step in on an eviction case. I had made the mistake of showing up to clinic despite approximately two inches of snow being on the ground which, being from Minnesota, I failed to recognize is an extinction-level event in Oregon.

Since no other students were around, I had to show up in housing court on a case I knew essentially nothing about. I was about as helpful as you may expect a law student to be in that circumstance. And yet… the case settled favorably for the client.

How did this happen?

I can assure you it wasn’t through any of my efforts, but rather because of the judge. After the parties announced themselves, the very first thing the judge did was to order the parties to talk things over in the hallway and try to settle, if possible. And when all you’ve seen of the other party is a name on a sheet of paper, it is amazing what a little face-time can do. Opposing counsel was (somewhat) sympathetic to the plight of our retired client, and an agreement was reached.

It is clear that the Tax Court is operating from different parameters than state courts are, especially in terms of frequency of court dates and potential remedies (eviction cases being largely issues between private parties). But to me this gets at the power of the judge simply saying, “go talk things over.” Infantilizing though it may be, I really do think that the parties often need that directive before they’ll actually do it.

Again, however, the Tax Court is not in the same position as state courts are. There needs to be a different window for the Tax Court to say “go talk it over” apart from physically being in the court, since Tax Court rides circuit and infrequently visits most locations in the country. Where might we find that window? I can think of two options.

Option One: Pretrial Conferences

I’ve only been a party to about five or six federal district court cases, and all have settled fairly quickly. The most striking difference between federal district court and tax court, in my opinion, is the formality: more formal scheduling, more formal discovery, more formal everything.

Another difference is in pre-trial conference procedures. FRCP 26(f) generally requires that the parties confer about the case (and the possibilities for settling) prior to the court’s scheduling order or conference. The Tax Court has no such requirement under the rules, as there are no required “initial disclosures,” and formal discovery is generally the last resort rather than a given.

Both the US Tax Court Rules and the Federal Rules of Civil Procedure also have specific rules covering pre-trial conferences. See FRCP 16(a) and Tax Court Rule 110. Both rules provide that pre-trial conferences are discretionary, but in my (albeit limited) district court experience they tend to come up as a matter of course: discussions of settlement being raised by the judge during what is technically a “scheduling conference.” Again, it is amazing what can happen when a judge simply tells the parties to talk with each other for a bit.

I see this occasionally in Tax Court as well, though it appears to be largely a matter of the individual judge’s tastes. Judge Holmes, for example, seems to take a more hands-on approach to his docket. It generally isn’t (and doesn’t need to be) a particularly formal conference: I’ve seen that oftentimes just the “threat” of a call with the judge ends up moving the case forwards, especially when it was mostly languishing due to administrative inertia.

There is, however, a pretty big impediment to the Tax Court using pre-trial conferences as a way to resolve cases (or encourage settlement) earlier in the process. Namely, that in many locations Tax Court cases remain on the “general docket” and don’t have a judge assigned to them until late in the game. In Minnesota, for example, there is no trial session set on either the fall or spring 2022 calendars. So if I filed a petition today I could be pretty confident that it would not be calendared until 2023… and even then, likely not until March or April (the Tax Court for some reason tends to avoid Minnesota in January and February).

So maybe pretrial conferences aren’t always a way for the Tax Court to initiate settlement at an earlier stage. But they could still be a way for practitioners to get the ball moving. Rule 110(c) provides that parties can move for pretrial conferences even when they are not calendared, with the pretrial conference taking place anywhere “convenient.” Since there are now virtual trials, and weeks set off for virtual trial dates, they may well make for convenient pretrial conference “locations.”

Option Two: Status Reports 

There are a few advantages that the Tax Court may have over federal district court in encouraging early settlement, despite its later (and less formal) involvement in most cases. And these advantages spring largely from the different infrastructure of Tax Court controversies, for both respondent and petitioners. Whereas the federal district court deals with a range of parties, the Tax Court always deals with the IRS. Tax Court judges are generally very familiar with IRS procedures.

But there is also the infrastructure that has been built up (in no small part due to the efforts of numerous PT editors and contributors, and the ABA) for petitioners. While there are certainly pro bono referral programs with federal district courts, I don’t believe any are as formalized or robust as those in the Tax Court. There has been buy-in from all parties, resulting in the Tax Court calendar call program and the IRS push for settlement days from on-high. And while the nationwide LITC program isn’t limited to Tax Court disputes, it is clear that Tax Court is the preferred venue of LITC practitioners (see LITC program report at page 24).

All of this is to say that perhaps this infrastructure can be better exploited for early settlement in Tax Court. My pitch would be to put certain cases on “status report track” before trial dates are even set. I imagine these to be generic orders asking the parties to file a status report say, four months after the petition is filed, where the parties address (1) whether any effort to work toward settlement has taken place, and (2) whether Appeals has contacted the Petitioner. For pro se petitioners, it could also include a question about whether they have reached out to LITCs for assistance.

In jurisdictions where the Tax Court infrequently holds trial, I think this approach could work where others fail. A few thoughts on why:

First, status reports are fairly informal and not particularly time consuming. A lot of the joint status reports I’ve filed with IRS counsel are two or three paragraphs. Nonetheless, they serve a purpose: in the passive-aggressive parlance of the Midwest, they are a “gentle reminder” to parties to get things done. I have found that many cases that have been languishing on purely administrative grounds suddenly get resolved when a status report is on the horizon.

Second, you don’t really need to have the Tax Court judge acting on status reports, the way you do with motions. In fact, you’re not supposed to ask the Tax Court to “do” anything in a status report. That’s the role of a motion (see designated order post on point here). Because of this, it is much less of a problem to require status reports where the case remains on the general docket: incoming Chief Judge Kerrigan presumably wouldn’t be overwhelmed with additional work.

Third, Tax Court litigation already utilizes informal processes that this could potentially tie into. The Branerton process is one that comes to mind, suggested to me by Les and written about a bit in a “PT Classic” guest-post from Prof. Scott Schumacher in 2015. Sad to say, I have seen numerous cases where the Branerton process never really occurs, and as trial looms the parties struggle to contact each other and do what they can to stipulate. Note that petitioners can also initiate Branerton, so there is equal blame to share when this occurs.

Lastly, when a trial date is set and the case is assigned to a specific judge, they can look over the record and see if the parties have communicated. At calendar calls there are invariably multiple motions to dismiss for lack of prosecution that the Tax Court judge must reach a determination on. Some of the inefficiencies in Tax Court cases resolving quickly surely falls on petitioners: this practice may help the Tax Court in reaching their decision on where the blame should fall.

Caleb Smith About Caleb Smith

Caleb Smith is Associate Clinical Professor and the Director of the Ronald M. Mankoff Tax Clinic at the University of Minnesota Law School. Caleb has worked at Low-Income Taxpayer Clinics on both coasts and the Midwest, most recently completing a fellowship at Harvard Law School's Federal Tax Clinic. Prior to law school Caleb was the Tax Program Manager at Minnesota's largest Volunteer Income Tax Assistance organization, where he continues to remain engaged as an instructor and volunteer today.

Comments

  1. Samantha Galvin Samantha Galvin says

    Congratulations, Caleb! Henrick is adorable. I hope he’s letting his parents get some rest!

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