November 1998

Forum Selection Through Multiple Petitioners

    In Estate of Israel v. Commissioner, ___ F.3d ___ (D.C. Cir. 10/27/98), reprinted at 208 DTR K-21 (10/28/98) and 98 TNT 209-13 (10/29/98), the Court of Appeals held that, where an estate had multiple executors who filed as petitioners in a Tax Court proceeding, the appeal in the case could go to a court of appeals of the executors' choice provided only that one of the executors resided in that Circuit when the petition was filed.    The venue rule in the Code says that the appeal is taken to the Circuit Court where the petitioner resides.  The petitioners in the case resided in different places.  One in New York, one in New Jersey and one in Bermuda.  Appeals were therefore to the 2d Circuit, 3d Circuit and D.C. Circuit, respectively.  The bottom-line issue was whether the estate could benefit from favorable D.C. Cir. precedent directly on point.  In the proceeding in the Tax Court, the Tax Court declined to follow the D.C. precedent under its Golsen rule, on the basis that appeal was not necessarily to the D.C. Cir..  The executors then appealed to the D.C. Cir. where they had a slam dunk based on precedent.

    The Government argued that there were multiple petitioners, each of whom must appeal to their respective circuits.  The D.C. Circuit, however, rejected the argument.  The court held that, where executors resided in different locations, they may file in the otherwise qualifying circuit court of appeals of their choice.  The court based its holding on rules of convenience, an important consideration in traditional venue determinations.  Significantly, the Court said:

* * * we refuse to split the appeal of a single Tax Court decision and force one of the appellants to litigate the same case in another circuit. Although there are examples of co-petitioners appealing one Tax Court decision in separate circuits, see, e.g., Gardner v. Comm'r, 954 F.2d 836, 837 (2d Cir. 1992); Benbow v. Comm'r, 774 F.2d 740, 740 n.1 (7th Cir. 1985), we have found no case in which a court has ordered the appellants to do so. Our refusal to require Mrs. Israel to sever her appeal is based on our reading of 7482(b)(1) -- that if venue is proper with respect to any one petitioner-appellant, it is proper with respect to all those who joined in a single Tax Court petition and who are appealing a single Tax Court decision. This is, we believe, consistent with sound judicial management. See FLRA v. Social Security Admin., 846 F.2d at 1478; Semmes Motors, Inc. v. Ford Motor Co., 429 F.2d 1197, 1204 (2d Cir. 1970). Parallel litigation in separate courts wastes judicial resources and has the potential to spawn inconsistent judgments. See Semmes, 429 F.2d at 1202-03. Rather than seeking some "rigid mechanical solution" to the problems posed by parallel lawsuits, the Supreme Court has instructed us to craft solutions that take into account the "conservation of judicial resources and comprehensive disposition of litigation." Semmes, 429 F.2d at 1204 (citing Kerotest Mfg. Co. v. C-O-Two Fire Equip. Co., 342 U.S. 180, 183 (1952)) (internal quotation marks omitted). Forcing Mrs. Israel to litigate in the Third Circuit the same case currently before us would be contrary to the Supreme Court's admonition. In short, when there is one Tax Court opinion generating one Tax Court decision, we should not force the parties to prosecute more than one appeal. While appellants may be able to file separate appeals from the same Tax Court judgment in separate circuits -- an issue we do not decide -- we most certainly should not encourage the practice, let alone order it, as the Commissioner urges us to do.

    Addressing the practical consideration how the Tax Court must reach a decision in a case where multiple petitioners live in different circuits, the Court held:

    Because 7482(b) allows multiple possible venues when there are multiple petitioner-appellants with different residences, the Tax Court may be unable to confine its decision to the law of any one circuit (assuming the circuits are in disarray). But we believe the venue provision makes this circumstance, rare as it may be, unavoidable.

    This is, of course, a significant decision, the implications of  which are noteworthy.  Assuming other courts buy the idea (and facially at least it is a sensible one), does this offer taxpayers the opportunity to plan for forum selection?  The residence at the time of petition has always offered some forum shopping opportunities, although many practical considerations prevent taxpayers from moving their residence simply to obtain a favorable precedent.   However, a move to a favorable circuit just prior to filing a petition could be at risk of challenge.  (At least we would prefer not to have to litigate that issue.)   But, in a multiple petitioner situation, most notably in an estate situation, one might anticipate the problem in naming the "right" executor (or, more properly, rightly residenced executor) or could provide in the planning documents that the executors can be expanded to include an additional executor of the current executors' choosing.   Of course, the estate would want to have some other ostensible reason for the expansion (some nexus between the new executor and the estate), but provided that could be achieved, it would appear that the Israel precedent could offer good tax planning.

    There are, of course, other situations where there would be multiple petitioners.  The most obvious is husband and wife.  If the spouses are divorced, it might well be that they live in different circuits.  Many   times they will file different petitions as to the same joint liability, and this might be a problem.  But, if they file a joint petition, Israel would appear to offer them the opportunity to choose the most favorable forum for the appeal.   This opportunity should be considered in other joint petitioner contexts..

    It is of course true that, as noted by the D.C. Circuit, the Courts of Appeals are not always in disarray.  But they are sometimes, and this is another weapon in the practitioners bag of tricks to help the taxpayer.'

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