Fifth Circuit Sides With Eleventh Circuit and Taxpayer in Lisle, Orders Tax Court to Adopt Special Trial Judge's Report

The Tax Prof Blog is reporting that on Monday the 5th Circuit sided with the 11th Circuit and the taxpayer in the long-running Ballard - Kanter - Lisle saga in Lisle v. Commissioner, No. 07-60862 (Consolidated with 07-60863 & 07-60864) (5th Cir. Aug. 25, 2008):

In this appeal, unlike the first, we have the benefit of the fact findings and conclusions of the Special Trial Judge that were rejected by the Tax Court and obscured in the first appeal. With the benefit of a complete record, our equivocal findings in the first appeal, and the findings of the Eleventh Circuit in the appeal of the related case affecting taxpayer Ballard, Ballard v. Comm’r, 522 F.3d 1229 (11th Cir. 2008) (Ballard III), we conclude that the Tax Court reviewing the report of the Special Trial Judge failed to give due regard to the factfindings of the trial judge and erred in issuing a judgment contrary to those findings. Accordingly, for the reasons set forth below, we vacate the Tax Court’s judgment as to the Lisles and remand with instructions to issue a final order adopting the Special Trial Judge’s report.


N.D. Ill. Analyzes Circuit Split as to Whether the EEOC may Issue Early Right-to-Sue Letters

Per Krause v. Turnberry Country Club, --- F.Supp.2d ----, 2008 WL 2819353 (N.D. Ill. Apr 17, 2008):

Courts have engaged in much discussion regarding the validity of 29 C.F.R. § 1601.28(a)(2). See King v. Dunn Mem'l Hosp., 120 F.Supp.2d 752, 755 (S.D.Ind.2000) (collecting cases). While the Seventh Circuit has yet to address the issue, other circuits are split as to whether the EEOC may issue early right-to-sue letters. The Ninth Circuit, Tenth Circuit, and Eleventh Circuit have upheld 29 C.F.R. § 1601.28(a)(2) against similar challenges. See Walker v.. United Parcel Serv., 240 F.3d 1268, 1277 (10th Cir.2001); Sims v. Trus Joist MacMillan, 22 F.3d 1059 (11th Cir.1994); Brown v. Puget Sound Elec. Apprenticeship & Training Trust, 732 F.2d 726 (9th Cir.1984). The District of Columbia Circuit adopted a contrary position, which Turnberry urges this Court to adopt. See Martini v. Fed. Nat'l Mortgage Ass'n, 178 F.3d 1336, 1340-48 (D.C.Cir.1999).


Seventh Circuit Reviews Split Re Interpretation of 8 C.F.R. § 208.13 Corroboration Rule as it Applies to Credible Testimony

Per Rapheal v. Mukasey, 533 F.3d 521 (7th Cir. Jul 02, 2008):

We explained in Gontcharova that the Board's interpretation of § 208.13(a) is not the only one possible, and then explained the then-existent circuit split: The Second and Third Circuits endorsed the Board's interpretation of the regulation, while the Ninth Circuit interpreted the regulation as meaning that it "does not require corroborative evidence ... from applicants for asylum and withholding of deportation who have testified credibly." Gontcharova, 384 F.3d at 876 (quoting Ladha v. INS, 215 F.3d 889, 899 (9th Cir.2000)). We then noted in Gontcharova that "[w]e have expressed skepticism about the use of the corroboration rule to discount otherwise credible testimony." Id. at 877. However, rather than rejecting the Board's corroboration rule out of hand, we held that "[i]n order that we may review its application, ... an IJ must explain his use of it," and set forth the three-step inquiry noted above. Id. at 877.


D.C. Circuit Recognizes Split Re Application of Updated "Advisory" Sentencing Guidelines as Ex Post Facto Violation

Per U.S. v. Andrews, 532 F.3d 900 (D.C. Cir. Jul 15, 2008):

[I]n its 2005 opinion in United States v. Booker, the Supreme Court held that the Sentencing Guidelines must now be regarded as advisory rather than mandatory. 543 U.S. at 245, 125 S.Ct. 738. This circuit has not yet determined whether, after Booker, application of a later (than the date-of-offense) Guidelines Manual that yields a higher sentence continues to raise an ex post facto problem. Nor has the Supreme Court. The Seventh Circuit has concluded that use of a later Manual no longer presents such a problem, holding that "the ex post facto clause should apply only to laws and regulations that bind rather than advise." United States v. Demaree, 459 F.3d 791, 795 (7th Cir.2006). Some other courts have indicated their agreement. See United States v. Mathis, 239 Fed.Appx. 513, 517 n. 2 (11th Cir.2007); United States v. Barton, 455 F.3d 649, 655 n. 4 (6th Cir.2006); see also United States v. Rodarte-Vasquez, 488 F.3d 316, 325 (5th Cir.2007) (Jones, C.J., concurring). The Eighth Circuit, however, disagrees. See United States v. Carter, 490 F.3d 641, 643 (8th Cir.2007). And several other circuits also appear to regard the ex post facto analysis as unchanged, continuing to apply Guidelines § 1B1.11(b)(1) in the same way they did before Booker. See United States v. Gilman, 478 F.3d 440, 449 (1st Cir.2007); United States v. Wood, 486 F.3d 781, 791 (3d Cir.2007); United States v. Austin, 479 F.3d 363, 367 (5th Cir.2007); United States v. Stevens, 462 F.3d 1169, 1170 (9th Cir.2006).

We do not need to decide which side of that circuit split we would join in order to resolve this case. “Even assuming the district court erred, ... absent an opinion by this circuit or the Supreme Court on the issue in dispute, there is no plain error unless [the] district court failed to follow [an] ‘absolutely clear’ legal norm....” United States v. Vizcaino, 202 F.3d 345, 348 (D.C.Cir.2000) (quoting United States v. Merlos, 8 F.3d 48, 51 (D.C.Cir.1993)). And there is no such absolutely clear norm here.


Third Circuit Notes Recent Split Re Congress's Authority to Regulate Intrastate Activities

Per U.S. v. Stevens, 533 F.3d 218 n.22 (3rd Cir. Jul 18, 2008):

[T]he question of whether Congress exceeds its constitutional authority when regulating intrastate activities was one that had, until just recently, divided the circuits. Compare, e.g., United States v. Rodia, 194 F.3d 465, 474-82 (3d Cir.1999) (upholding statute prohibiting intrastate possession of child pornography made with materials that had traveled in interstate commerce) with United States v. Smith, 402 F.3d 1303, 1315-16 (11 th Cir.2005) (finding the same statute unconstitutional), cert. granted and vacated, 545 U.S. 1125, 125 S.Ct. 2938, 162 L.Ed.2d 863 (2005), and rev'd on remand, 459 F.3d 1276, 1284-85 (11th Cir.2006) (upholding statute as proper exercise of Commerce Clause power in light of Gonzales v. Raich, 545 U.S. 1, 125 S.Ct. 2195, 162 L.Ed.2d 1 (2005)).


Seventh Circuit Discusses Split Re Whether a District Court's Order to Remand to Bankruptcy Court is Appealable

Per In re Holland, --- F.3d ----, 2008 WL 3844140 (7th Cir. Aug 19, 2008):

Circuit courts remain split on which test to apply in determining whether a district court order that remands a case to a bankruptcy court is appealable. See, e.g., In re Lopez, 116 F.3d 1191, 1192 (7th Cir.1997) (cataloging cases). Most circuits have held that such an order is not final and appealable unless the remand is for "ministerial" proceedings. See, e.g., In re Pratt, 524 F.3d 580, 584-85 (5th Cir.2008), cert. denied, --- U.S. ----, 128 S.Ct. 2445, --- L.Ed.2d ---- (2008); In re Penn Traffic Co., 466 F.3d 75, 78-79 (2d Cir.2006) (per curiam); In re Torres, 432 F.3d 20, 22-23 (1st Cir.2005); In re Popkin & Stern, 289 F.3d 554, 556 (8th Cir.2002); In re Overland Park Fin. Corp., 236 F.3d 1246, 1251 (10th Cir.2001); In re Alvarez, 224 F.3d 1273, 1275 (11th Cir.2000); Jove Eng'g v. IRS, 92 F.3d 1539, 1547-48 (11th Cir.1996); In re St. Charles Preservation Investors, Ltd., 916 F.2d 727, 728-29 (D.C.Cir.1990) (per curiam); see also In re Wallace & Gale Co., 72 F.3d 21, 24 (4th Cir.1995) ("District court orders remanding cases to the bankruptcy court for further consideration are not, ordinarily, final orders."). The Sixth Circuit "will not deem final a district court's decision remanding to a bankruptcy court for further proceedings if the district court has not certified the decision pursuant to Fed.R.Civ.P. 54(b)." In re Brown, 248 F.3d 484, 485 (6th Cir.2001); see also In re Yousif, 201 F.3d 774, 781 (6th Cir.2000) (Moore, J., concurring). And the Third and Ninth Circuits apply multi-factor balancing tests to determine whether an order is final and appealable in this context. See In re Fowler, 394 F.3d 1208, 1211 (9th Cir.2005); In re Pransky, 318 F.3d 536, 540-41 (3d Cir.2003).

Our circuit precedent accords with the majority view: "[E]ven if the decision of the bankruptcy court is final, a decision by the district court on appeal remanding the bankruptcy court's decision for further proceedings in the bankruptcy court is not final, and so is not appealable to this court, unless the further proceedings contemplated are of a purely ministerial character...." In re Lopez, 116 F.3d at 1192. What remains to be decided here is hardly ministerial: the bankruptcy court still has to answer the $350,000 question whether Holland is entitled to an exemption under Florida law. See In re A.G. Fin. Serv. Ctr., Inc., 395 F.3d 410, 413 (7th Cir.2005) ("To say that the remand is for a ministerial act is to say that the district judge has fully resolved the litigation: there is no legal decision for a bankruptcy judge to make, no fact to find, no discretion to exercise."). Only then-after the bankruptcy court has made its final ruling, the district court has revisited the case, and a fresh notice of appeal to our court has been filed-can we exercise jurisdiction over the matter. See In re Fox, 762 F.2d 54, 55-56 (7th Cir.1985).


N.D. Fla. Notes Split Re Removal from State Administrative Agencies Under § 1441

Per Johnson v. Albertson's LLC, 2008 WL 3286988 (N.D. Fla. Aug 06, 2008):

The Eleventh Circuit has yet to decide whether cases may be removed from state administrative agencies pursuant to § 1441, and if so, under what circumstances. See Bellsouth Telecomm., Inc. v. Vartec Telecom, Inc., 185 F.Supp.2d 1280, 1281 (N.D.Fla.2002) (noting that "[t]he issue of removal of an administrative proceeding is one of first impression in this circuit."). The decisions from other circuits are split on how to approach the issue. Some circuits have applied a "functional" test, allowing removal in cases in which a state administrative agency essentially functions as a court. See Floeter v. C.W. Transport, Inc., 597 F.2d 1100, 1101-02 (7th Cir.1979); see also Volkswagen de Puerto Rico, Inc. v. Puerto Rico Labor Relations Bd., 454 F.2d 38, 44 (1st Cir.1966) (dictum). Other courts have rejected the "functional" approach as contrary to the plain language of the removal statute. Oregon Bureau of Labor & Indus. ex rel. Richardson v. U.S. West Communications, Inc., 288 F.3d 414, 419 (9th Cir.2002); Sun Buick, Inc. v. Saab Cars, USA, Inc., 26 F.3d 1259, 1263 (3rd Cir.1994); County of Nassau v. Cost of Living Council, 499 F.2d 1340 (Temp.Emer.Ct.App.1974) (disapproving the functional test and stating that § 1441(a) contemplates removal from other court proceedings rather than the "interruption of administrative proceedings").


D. Neb. Recognizes Split Among Circuits Re Fourth Amendment Violation During Traffic Stop Based on Unrelated Police/Suspect Conversation

Per U.S. v. Dortch, 2008 WL 3287515 (D. Neb. Aug 07, 2008):

Absent consent or reasonable suspicion, the Eighth Circuit Court of Appeals acknowledges a split among the circuit courts with respect to "whether an officer conducting a traffic stop based upon probable cause violates the Fourth Amendment 'by asking a few questions about matters unrelated to the traffic violation, even if this conversation briefly extends the length of the detention,' " but has not resolved the issue in this circuit. See Peralez, 526 F.3d at 1120-21 (noting that the extension in that case, sixteen minutes in which an officer engaged in a "blended process" of conducting a routine traffic stop and drug interdiction investigation, could not be characterized as brief).


First Circuit Notes Split Re Defining "Relatedness" between ERISA Claims and Wrongful Termination Claims for Compulsory Joinder Purposes

Per Negron-Fuentes v. UPS Supply Chain Solutions, 532 F.3d 1 (1st Cir. Jun 18, 2008):

However, applying claim preclusion to bar the two ERISA claims (one only arguably so but we will return to this later) is contested by Negron and here we think the district court erred. This is so even assuming dubitante--because Negron does not dispute the assumption--that the ERISA claims are sufficiently factually connected to the ADA claim from Negron I to satisfy the "relatedness" predicate for compulsory joinder ( i.e., that all arose from the same "transaction, or series of connected transactions," Restatement (Second) of Judgments, supra, § 24).FN6

FN6. The circuits have divided in applying this fact-intensive test to similar cases. Compare King v. Union Oil Co. of Cal., 117 F.3d 443, 447 (10th Cir.1997) (benefits claim and wrongful termination claim sufficiently related), with Herrmann v. Cencom Cable Assocs., Inc., 999 F.2d 223, 227 (7th Cir.1993) (insufficient overlap between such claims to justify preclusion).


Ninth Circuit Weighs in on Split Re Measurement of "Materiality" in Context of False Claims Act

Per U.S. v. Bourseau, 531 F.3d 1159 (9th Cir. Jul 14, 2008):

The Supreme Court has stated that "[i]n general, a false statement is material if it has 'a natural tendency to influence, or [is] capable of influencing, the decision of the decisionmaking body to which it was addressed.' " Neder v. United States, 527 U.S. 1, 16, 119 S.Ct. 1827, 144 L.Ed.2d 35 (1999). Yet, circuit courts are split on how to measure materiality in the context of the FCA. See Medshares Mgmt. Group, Inc., 400 F.3d at 445. The Fourth and Sixth Circuits have adopted a "natural tendency test" for materiality, which focuses on the potential effect of the false statement when it is made rather than on the false statement's actual effect after it is discovered. Id. The Eighth Circuit has adopted a more restrictive "outcome materiality test," which requires a showing that the defendant's actions (1) had "the purpose and effect of causing the United States to pay out money it is not obligated to pay," or (2) "intentionally deprive[d] the United States of money it is lawfully due." Id. (citing Costner v. URS Consultants, 153 F.3d 667, 677 (8th Cir.1998)). We agree with the Fourth and Sixth Circuits that the natural tendency test is the appropriate measure for materiality because it is more consistent with the plain meaning of the FCA. Id. Applying the natural tendency test to this case, we hold that Appellants' cost report entries were material because they had the potential effect, or natural tendency, to decrease the amount CPMS owed Medicare in overpayments, despite the fact that cost reports were never audited.


Third Circuit Notes Resolution of Split Re Whether Mixed-motive Theory Discrimination Claims Must be Proven with Direct Evidence

Per Makky v. Chertoff, --- F.3d ----, 2008 WL 3091785 (3rd Cir. Aug 07, 2008):

Although the courts were divided about whether a discrimination claim brought under a mixed-motive theory had to be proven with direct evidence, the Supreme Court resolved the circuit split in Desert Palace by holding that a plaintiff does not need to present "direct evidence" of discrimination to proceed on a mixed-motive theory of discrimination under Title VII. Id. at 92. The Court reiterated the general principle that "Title VII has made it an 'unlawful employment practice for an employer ... to discriminate against any individual ..., because of such individual's race, color, religion, sex, or national origin." Id . at 92-93 (quoting 42 U.S.C. § 2000e-2(a)(1)). In sum, "[i]n order to obtain an instruction under § 2000e-2(m), a plaintiff need only present sufficient evidence for a reasonable jury to conclude, by a preponderance of the evidence, that 'race, color, religion, sex, or national origin was a motivating factor for any employment practice.' " Id. at 101.


Fifth Circuit Judge Notes Split Re Interpretation of Lawrence as it applies to Commercial Activity

Per Reliable Consultants Inc. v. Earle, --- F.3d ----, 2008 WL 2941355 (5th Cir. Aug 01, 2008) (Garza, J., dissenting from the denial of rehearing en banc):

In construing the personal liberty interest announced in Lawrence to encompass commercial activity, the Reliable majority also split with an opinion of the Eleventh Circuit in a case strikingly similar to Reliable. See Williams, 378 F.3d at 1250. In Williams, the ACLU, on behalf of various individual users and vendors of sexual devices, filed a lawsuit seeking to enjoin an Alabama statute, which, like the challenged Texas statute here, prohibited the commercial distribution of such devices.FN6 Williams, 378 F.3d at 1233. The Williams Court began its analysis by observing that the Supreme Court never has recognized a broadly-defined fundamental right to "privacy" or to "personal autonomy." Id. at 1235 (citing Washington v. Glucksberg, 521 U.S. 702, 725, 117 S.Ct. 2258, 138 L.Ed.2d 772 (1997)). Nor, according to Williams, has the Supreme Court ever recognized a "free standing 'right to sexual privacy.' " Id. Indeed, Williams observed that the Supreme Court has at least twice declined to recognize a fundamental right to sexual privacy, choosing instead to define narrower liberty interests, specific to the cases at hand. See id. at 1235-36 (citing Carey v. Population Servs. Int'l, 431 U.S. 678, 688 n. 5, 97 S.Ct. 2010, 52 L.Ed.2d 675 (1977); Lawrence v. Texas, 539 U.S. 558, 123 S.Ct. 2472, 156 L.Ed.2d 508 (2003)). Finding no fundamental right, the Williams Court concluded that the narrow right announced in Lawrence did not extend to protect "the commercial distribution of sex toys," Williams, 378 F.3d at 1250, and thereby left untouched its pre- Lawrence decision, which, applying rational basis review, held that the Alabama statute did not violate the Fourteenth Amendment, Williams v. Pryor, 240 F.3d 944, 952 (11th Cir.2001). The Reliable majority's point of departure from Williams is their failure to recognize that the liberty interest announced in Lawrence is a narrow, personal one that does not extend to commercial activity. Notwithstanding the circuit-split that their opinion created, the Reliable majority made no effort to explain why, in their view, the Eleventh Circuit erred.


Seventh Circuit Notes Split Re Interpretation of Mens Rea Requirement in Drug Manufacturing Statute

Per U.S. v. Khattab, --- F.3d ----, 2008 WL 2971808 (7th Cir. Aug 05, 2008):

There is a split among our sister circuits as to the proper interpretation of the mens rea requirement in 21 U.S.C. § 841(c)(2)-one circuit believes the statute requires a defendant's subjective knowledge that the drugs he possesses or distributes will be used to manufacture a controlled substance, while at least three other circuits parse the statute to allow conviction based upon either subjective knowledge or an objective "cause to believe." Compare United States v. Truong, 425 F.3d 1282, 1289 (10th Cir.2005) (requiring government to prove "actual knowledge, or something close to"), and United States v. Saffo, 227 F.3d 1260, 1269 (10th Cir.2000) ("The 'reasonable cause to believe' standard thus comports with the subjective 'guilty mind' or 'guilty knowledge' requirement for imposing criminal liability."), with United States v. Galvan, 407 F.3d 954, 957 (8th Cir.2005) (rejecting proposed jury instruction that required actual knowledge and ignored "reasonable cause to believe" statutory language); United States v. Kaur, 382 F.3d 1155, 1157-58 (9th Cir.2004) ("[C]onsistent with the text of the statute, the instruction incorporates both subjective and objective considerations."); and United States v. Prather, 205 F.3d 1265, 1270 (11th Cir.2000) ("[T]he jury thus needed to find either that he knew the pseudoephedrine would be used to manufacture methamphetamine or that he had reasonable cause to believe that it would be."). The district court applied the more stringent standard of the Tenth Circuit, which requires "actual knowledge, or something close," and concluded that the government sufficiently proved that Khattab knew that the pseudoephedrine he attempted to purchase would be used to manufacture methamphetamine.


Sixth Circuit Notes Split Re Application of Earmarking Doctrine in the Context of a Refinancing Transaction

Per In re Lee, 530 F.3d 458 (6th Cir. Jun 26, 2008):

When applying the earmarking doctrine in the context of a refinancing transaction, courts have split over whether to characterize the refinancing as a single unitary transaction or as a number of parts. Although Chase suggests that the multiple-transfer approach adopted by the First Circuit in In re Lazarus has been followed only by a small minority of bankruptcy courts, it is in fact the prevailing view. See Encore Credit Corp. v. Lim, 373 B.R. 7, 17 (E.D.Mich.2007); George v. Argent Mortgage Co. (In re Radbil), 364 B.R. 355, 358 (Bankr.E.D.Wis.2007); Baker v. Mortgage Elec. Registration Sys., Inc. (In re King), 372 B.R. 337, 341 (Bankr.E.D.Ky.2007); Peters v. Wray State Bank (In re Kerst), 347 B.R. 418, 422 (Bankr.D.Colo.2006); Gold v. Interstate Fin. Corp. (In re Schmiel), 319 B.R. 520, 528 (Bankr.E.D.Mich.2005); Scaffidi v. Kenosha City Credit Union (In re Moeri), 300 B.R. 326, 329-30 (Bankr.E.D.Wisc.2003); Strauss v. Chrysler Fin. Co. (In re Prindle), 270 B.R. 743, 746-47 (Bankr.W.D.Mo.2001); Sheehan v. Valley Nat'l Bank (In re Shreves), 272 B.R. 614, 625 (Bankr.N.D.W.Va.2001); Vieira v. Anna Nat'l Bank (In re Messamore), 250 B.R. 913, 916 (Bankr.S.D.Ill.2000). See also Goodman v. S. Horizon Bank (In re Norsworthy), 373 B.R. 194, 200 n. 3 (Bankr.N.D.Ga.2007) ("Many courts have held that the 'earmarking doctrine' is not properly applied in the case of the transfer of a security interest."). In actuality, the case upon which Chase relies, In re Heitkamp, 137 F.3d 1087, represents the minority view. As far as we are aware, the only courts that have followed it are lower courts in the Eighth Circuit, the lower courts in In re Lazarus, and the district court here.


Ninth Circuit Weighs in on Split Re Scope of Attorney's Fees under § 406(b)

Per Clark v. Astrue, 529 F.3d 1211 (9th Cir. Jun 25, 2008):

The issue presented here is one of first impression in the Ninth Circuit: Does 42 U.S.C. § 406(b) limit only the attorney's fees awarded under § 406(b) for representation before the court to 25% of the claimant's past-due benefits, or does § 406(b) limit the combined total of attorney's fees awarded under both § 406(a) and § 406(b) to 25% of past-due benefits? Other circuits that have addressed this issue have reached different results. Based on the plain text of the statute, the Sixth and Tenth Circuits have held § 406(b)'s cap on attorney's fees applies only to fees awarded under § 406(b), and does not limit the combined fees awarded under both § 406(a) and § 406(b). Wrenn ex rel. Wrenn v. Astrue, 525 F.3d 931, 936 (10th Cir.2008); Horenstein v. Sec'y of Health & Human Servs., 35 F.3d 261, 262 (6th Cir.1994) (en banc), overruling Webb v. Richardson, 472 F.2d 529 (6th Cir.1972). Based primarily on legislative history, however, the Fourth and Fifth Circuits have held § 406(b) limits the combined attorney's fees awarded under both § 406(a) and § 406(b) to 25% of the claimant's past-due benefits. Morris v. Social Sec. Admin., 689 F.2d 495, 497-98 (4th Cir.1982); Dawson v. Finch, 425 F.2d 1192, 1195 (5th Cir.1970).

Because the plain text of § 406(b) limits only the award of attorney's fees for representation of a Social Security claimant before the district court, we follow the Sixth and Tenth Circuits, and hold the district court erred in concluding § 406(b) limits the total amount of attorney's fees awarded under both § 406(a) and § 406(b).

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