More on Ballard and Kanter

Yesterday, the government (as Marty had predicted) lost the consolidated cases Ballard v. Commissioner, No. 03-184, and Kanter v. Commissioner, No. 03-1034. The cases presented the question whether the Tax Court may keep secret the initial reports of its Special Trial Judges (STJs).

Justice Ginsburg, writing for the majority, focused not on whether the practice of keeping the STJ report secret comports with the Due Process Clause (a claim that Ballard and Kanter had stressed), but instead on the consistency of the Tax Courts process with its own Rules. Justice Kennedy, joined by Justice Scalia concurred. [Chief] Justice Rehnquist, joined by Justice Thomas, dissented, disagreeing both with the majoritys reading of the Rules, and with its decision even to take up the issue of the consistency of the Tax Courts practice with its Rules. You can read more about the background of the case, its procedural posture and the parties’ arguments in my earlier post here.

Under the Tax Courts Rules, Special Trial Judges are not to decide cases in which more than $50,000 is at stake (this case involved liability of $30 million). In such cases, the Special Trial Judge is instead required by the Courts Rule 183 to prepare a report, which is then transmitted to a regular Tax Court judge, who may adopt the Special Trial Judges report or modify it or reject it in whole or in part. In any event, the judge must give [d]ue regard * * * to the circumstance that the Special Trial Judge had the opportunity to evaluate the credibility of witnesses. The Rule further specifies that the findings of fact recommended by the Special Trial Judge shall be presumed to be correct. Here, the petitioners claimed that the Tax Court judge had, while providing a recitation that he adopted the STJ’s report, actually changed the report’s conclusions. However, there was no way to know, or to challenge the change, given that the report was secret.

The Court rejected the governments reading of this Rule, without reaching the due process issue. The government had argued that the practice was allowed by the Rule and due process because the STJs report was not, in fact, a report within the meaning of the Rule, but was instead a draft, part of the Courts (secret) deliberative process. The report to which the Rules refer is one issued by the regular Tax Court judge (adopting, modifying or rejecting the STJ report); this report is a “collaborative effort” between the two judges. The Court rejected this reading of the Rule, both because of the language of the Rule, and because the practice has the potential to impede appellate review, by obscuring whether the Tax Court judge did, in fact, give due regard to the key fact-finding role of the STJs that the Rules prescribe. Finally, the Court noted that, [t]he Tax Court, like all other decisionmaking tribunals, is obliged to follow its own Rules. (Or, at least, the Supreme Courts interpretation of them.)

Justice Kennedy, joined by Justice Scalia, concurred in the majority opinion, noting that it is unclear what actually happened in the case whether the original STJ report in this case was, in fact, altered. In addition, the concurrence stresses that, while the Tax Court could formulate a rule that allowed for informal consultation, a rule that provides for deference to the STJ must also provide access to the STJs report.

[Chief] Justice Rehnquist, writing for himself and Justice Thomas, found the Tax Courts interpretation of its Rule reasonable, and entitled to deference. He also sharply criticized the Court for addressing the Rules issue, which he claims was not raised. In memorable footnote language, he claimed that, [o]nly by failing to abide by our own Rules can the Court hold that the Tax Court failed to follow its Rules.