tei audits & appeals seminar

© 2018 Eversheds Sutherland (US) LLPAll Rights Reserved. This communication is for general informational purposes only and is not intended to constitute legal advice or a recommended course of action in any given situation. This communication is not intended to be, and should not be, relied upon by the recipient in making decisions of a legal nature with respect to the issues discussed herein. The recipient is encouraged to consult independent counsel before making any decisions or taking any action concerning the matters in this communication. This communication does not create an attorney-client relationship between Eversheds Sutherland (US) LLP and the recipient. Eversheds Sutherland (US) LLP is part of a global legal practice, operating through various separate and distinct legal entities, under Eversheds Sutherland. For a full description of the structure and a list of offices, please visit www.eversheds-sutherland.com.

TEI Audits & Appeals Seminar

Resolution Through the Courts

May 3, 2018

Carley RobertsPartner

Tim GustafsonCounsel

Eversheds Sutherland

Reasons to LitigateAgenda

─ Litigation: Pros / Cons

─ Getting into Court

─ Framework of a Case

─ Pleadings

─ Pretrial Issues• Discovery• Other Considerations

─ Trial

─ Appeal

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Audience Participation(Surprise!)


Your ExperienceAudience Participation

How many trials have you experienced?

A. 1-5

B. 6+

C. None

D. Only these tax conferences

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Your Experience – ResultsAudience Participation

How many trials have you experienced?

A. 1-5 [RESULTS]

B. 6+ [RESULTS]

C. None [RESULTS]

D. Only these tax conferences [RESULTS]

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What has been / do you expect to be the most difficult part of a trial?

A. Controlling witnesses

B. Controlling attorneys

C. Keeping the Judge awake

D. Controlling costs

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What has been / do you expect to be the most difficult part of a trial?

A. Controlling witnesses [RESULTS]

B. Controlling attorneys [RESULTS]

C. Keeping the Judge awake [RESULTS]

D. Controlling costs [RESULTS]

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What do you / would you fear most about going to trial?

A. Discovery

B. Losing

C. Nothing – we always settle

D. Spending weeks on end with the likes of us

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What do you / would you fear most about going to trial?

A. Discovery [RESULTS]

B. Losing [RESULTS]

C. Nothing – we always settle [RESULTS]

D. Spending weeks on end with the likes of us [RESULTS]

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Litigation: Pros / Cons


Reasons to LitigateLitigation: Pros / Cons

─ Another opportunity to win

─ Likely first independent review by legal professionals

─ Likely first opportunity to put on a full case, complete with witnesses and experts

─ Opportunity to “test” and resolve recurring issue with a small-dollar year or year with strongest facts

─ Leverage court case for other disputed years and in other jurisdictions (good domino effect)

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Considerations Against Going to CourtLitigation: Pros / Cons

─ Cost• Money• Time• Resources

─ Unpredictability

─ Setting a bad precedent in one, if not multiple, jurisdictions (bad domino effect)

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Getting into Court


Exhaustion of Administrative RemediesGetting into Court

─ Did you exhaust your administrative remedies?• In Illinois, if you initiate an administrative protest, you must obtain a final administrative decision before bringing an action in court, even if there is an exception to the exhaustion of remedies doctrine (Magicjack Vocaltec, Ltd., et al. v. City of Chicago Dept. of Finance (Ill. App. Ct. 2018) 2018 IL App (1st) 171015-U)

• In Texas, you must file a motion for rehearing of denied tax refund claim before filing lawsuit (Tex. Tax Code § 112.151(a)(2))

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Exhaustion of Administrative Remedies (con’t.)Getting into Court

─ Are you exhausted yet?• In California, you must “use all available agency administrative procedures for relief and … proceed to a final decision on the merits by that agency” before going to court (Barnes v. State Bd. of Equalization (Cal. Ct. App. 1981) 118 Cal. App. 3d 994)

• What does this mean?

─ Consequences of failure to exhaust• Jurisdictional bar – case dismissed!• Evidentiary bar – documents not produced in administrative proceedings may be precluded at trial

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Framework of a Case


The PathFramework of a Case

─ Taxpayer Files Complaint / Petition

─ State Files Responsive Pleading (e.g., answer, demurrer)

─ Discovery

─ Pretrial Conferences

─ Settlement Proceedings / Conferences

─ Motions Practice (e.g., Summary Judgment)

─ Trial

─ Decision

─ Appeal

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Create a Trial PlanFramework of a Case

─ What?• Lays out the legal test

• Elements to satisfy• Burdens to overcome

• What you must prove and how you will prove it

─ Why?• Consolidates work done• Reveals gaps where factual support needed (fill with witness testimony / additional documentation)

• Reveals potential weak spots

─ When? Yesterday!

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Pleadings


ComplaintPleadings

─ Generally does not require much detail• Notice pleading compared to fact pleading depending on the cause of action

─ Plead causes of action broadly• Arguments may be limited on appeal based on the contents of the complaint

• In CA, arguments at trial limited to those set forth in administrative refund claim

─ May require verification by client and check local rules regarding signature

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Responsive PleadingsPleadings

─ Answer• Admits / denies (specifically or generally) the allegations in the Complaint

─ Demurrer• Legal challenge to sufficiency of Complaint• Question: does Complaint on its face state a cause of action?

• All facts pleaded assumed to be true• Burden on Defendant to show no cause of action• Typically, leave to amend Complaint if demurrer granted• Resolves case without discovery (but you lose)

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Pretrial Issues –Discovery


Discovery – OverviewPretrial Issues

─ Timing issues• When can you start discovery?• When does discovery end (i.e., cut-off date)?

─ Broad scope• Relevance test (e.g., to a claim or defense), not admissibility test

─ Protections against disclosure• Privileges apply• What about protective orders?

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Discovery – Addressing Discovery Issues GenerallyPretrial Issues

─ Watch deadlines

─ Sequencing your discovery

─ Use your trial plan to determine what evidence you need from opposing party and how to get it

─ Anticipate your weak spots involving opponent’s discovery

─ Objecting to discovery requests

─ Compelling discovery

─ Note: Failing to produce documents that should have been produced could result in preclusion from trial (or sanctions)

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Discovery – Privilege IssuesPretrial Issues

─ Always watch for and protect / maintain privileges

─ Will likely first arise in discovery

─ Attorney-client privilege – the big one!

─ Work-product doctrine – NOT privilege, but stillimportant

• “The work-product rule is not a privilege but a qualified immunity protecting from discovery documents and tangible things” under certain specified circumstances (Admiral Ins. Co. v. U.S. Dist. Court for Dist. of Arizona(9th Cir. 1989) 881 F.2d 1486)

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Discovery – InterrogatoriesPretrial Issues

─ Written questions served on another party to be answered under oath

─ Commonly used to learn a party’s contentions, including the facts, witnesses and writings on which a contention is based

─ Are they allowed? (Not in Oregon – Oregon Tax Court Rule 36)

─ Are they limited in number? (35 in California – Cal. Code Civil Proc. § 2030.030)

─ Are they “continuing”? (Generally, no)

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Discovery – Document Requests / DemandsPretrial Issues

─ Inspect and copy documents and records

─ Must already exist and must be in your possession / control

─ Definition of “documents” and “writings” very broad and includes electronic “writings” and electronically stored information

─ Requests often very broad – watch out for fishing expeditions

─ Objections allowed (e.g., overbroad, ambiguous, does not seek relevant information, etc.)

─ Review privilege log carefully

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Discovery – Requests for AdmissionsPretrial Issues

─ Use to narrow issues at trial

─ Requests can establish existence or nonexistence of facts and/or authenticate documents

─ Asks a party to admit or deny genuineness of document, truth of a fact, or an application of law to fact

─ Admission = matter conclusively established

─ Check for numerical limitations (e.g., limit of 35 in California (except for document genuineness) – Cal. Code Civil Proc. § 2033.030)

─ Often combined with interrogatories

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Discovery – Depositions (Overview)Pretrial Issues

─ Get to ask questions of a party, answered under oath

─ Very broad in scope of questioning – again, seeking discovery of relevant information

─ PMK (“person most knowledgeable”) Depositions

─ What about your CEO, CFO, COO?

─ Any applicable limitations? (e.g., One depo rule? One day rule?)

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Discovery – Depositions (Use at Trial)Pretrial Issues

─ In some cases, deposition transcript may be used by any party for any purpose • In CA, deposition transcript may be used for “any purpose” if deponent resides more than 150 miles from where the trial is taking place (Cal. Code Civil Proc. § 2025.620)

• Portions ultimately may be read into the record at trial, even if the deponent is available to testify live

─ Deposition defense can be used as a sword• Opportunities to ask follow-up and clarifying questions during the deposition

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Pretrial Issues –Other Considerations


Other Considerations – ConferencesPretrial Issues

─ Pretrial status conferences• Set case timing (e.g., discovery cut-off, briefing deadlines, trial date(s))

• How fast do you want to go?• Same issue in other jurisdictions?• Cost considerations• Is it up to you?

─ Settlement discussions / conferences• May be court-ordered• Better negotiating position / more leverage after discovery?

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Other Considerations – Summary Judgment (Overview)Pretrial Issues

─ Question: Based on (1) undisputed material facts, (2) is the moving party entitled to a judgment as a matter of law?

─ Can be on an entire case or a portion of the case (i.e., partial summary judgment)

─ A single disputed material fact defeats the motion• Consider stipulation of fact

─ Proper response may be a cross-motion for summary judgment

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Other Considerations – Summary Judgment (Best Practices)Pretrial Issues

─ Know the rules• In D.C., parties must seek consent before filing any motion (with limited exceptions) (D.C. Super. Ct. Civ. R. 12-I)

─ Establish a theme, just like in a trial• Don’t just give the judge a legal reason to agree with you, make the judge want to agree with you

─ Rein in evidentiary objections – can defeat purpose of summary judgment

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Other Considerations – Consultants and ExpertsPretrial Issues

─ A major potential danger / problem area

─ What about privilege?• Testifying vs. non-testifying experts (consultants)• Communicating with experts – what to share

─ Keep expert witness testimony consistent

─ Use of expert on “legal” issue?

─ Worth the cost?

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Trial


Motions in LimineTrial

─ Motions “on or at the threshold” or “in the beginning” can be a valuable tool to exclude evidence before trial• May also distract opposing counsel before trial• Of course, turnabout is fair play

─ Caution – may draw attention to issues or arguments opposing counsel had not considered

─ Judges typically deny and decide during trial (no jury to worry about)

─ Possible to renew motion at trial (e.g., exclude expert witness testimony)

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BriefingTrial

─ Keep pretrial briefing simple, but use to educate the Judge

─ Use post-trial briefing strategically

─ Bench memos • Suggest / offer bench memos on favorable issues to help the Judge

• Judge may request memo on an issue of law (if asked, then it’s important to the Judge)

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EvidenceTrial

─ Consistency is critical• What did you say in discovery responses?

─ Make the best record you can• Know the Rules of Evidence• Exhibits• Lay witnesses

• Can / do Judges question witnesses?• Expert witnesses• Use of joint stipulations• Cross examinations

─ Be flexible

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Post-TrialTrial

─ Tentative statement of decision?• Opportunity to object

• Failure to address issue• Ambiguous findings

• Failure to object may constitute waiver

─ Costs / Attorneys’ fees• Did you prevail?• Are fees awardable?

─ Can you leverage or minimize result for your benefit?

─ What is binding effect of the decision?

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Appeal


OverviewAppeal

─ Is this where you wanted to be from the outset?• What about Wayfair? Coordinated to get US Supreme Court to weigh in

• Thinking ahead may involve appellate forum shopping

─ Appeal by right, or is it discretionary?• Discretionary / mandatory review by State Supreme Court• Discretionary review by US Supreme Court of (only) federal constitutional / statutory issues

─ What is the level of review?• De novo review of legal findings• Substantial evidence review for factual findings

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ProcessAppeal

─ Basically a paper exercise with oral argument

─ Monitor relevant developments between trial and appeal• Consider request for judicial notice

─ Research appellate panel to identify tendencies

─ Consider using consultants• Former Justices are invaluable resources• Provide an understanding about the process and players

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Questions?

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eversheds-sutherland.com© 2018 Eversheds Sutherland (US) LLPAll rights reserved.This communication cannot be used for the purpose of avoiding any penalties that may be imposed under federal, state or local tax law.

Contact us

Carley RobertsPartnerEversheds Sutherland (US) [email protected]

Tim GustafsonCounselEversheds Sutherland (US) [email protected]

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