Subject: Judge alters secret finding in fraud trial,1,2094558.story?ctrack=1&cset=true
Tax court reversal `incredible'
Judge alters secret finding in fraud trial

By Maurice Possley
Tribune staff reporter
Published June 24, 2005

During the 1970s and 1980s, Chicagoan Burton Kanter earned a reputation as one of the nation's top estate tax lawyers, representing an eclectic group of clients, including Hugh Hefner, Bobby Hull and Sam Zell, as well as rock groups Santana and Creedence Clearwater Revival.

But in 1999, a U.S. Tax Court judge ruled that Kanter and two of his business partners had engaged in a fraudulent kickback scheme that deprived the Internal Revenue Service of more than $30 million.

The tax court judge wrote that he had adopted the findings of the original trial judge, who determined that they had underpaid taxes after a lengthy trial.

Two years later, Kanter died, still believing he had done nothing wrong.

Had he lived, Kanter would have learned last month that the trial judge actually ruled in his favor, but that finding--kept secret under tax court rules--was inexplicably reversed by the U.S. Tax Court judge in his official court opinion.

Lawyers and law professors familiar with the case are stunned by the disclosure.

"How could the tax court judges essentially lie about what was in the report?" said Julie Roin, a law professor at the University of Chicago who has followed the case.

"I find it incredible. ... It makes you wonder what's going on," Roin said.

The dispute provides a rare look inside the court, located in Washington, D.C., and, according to tax experts, raises questions about the credibility of the court's decision-making process in what often are multimillion-dollar cases.

D. Irvin Couvillion, a special trial judge for the tax court, oversaw the trial of the case in 1994 and filed his findings in 1998. Pursuant to normal tax court rules, those findings were sent to Tax Court Judge Harold Dawson for review and issuance of a final decision.

Dawson found that there had been a fraud, stating in the first paragraph of his decision that he "agrees with and adopts the opinion of the Special Trial Judge, which is set forth below."

But last month, after a five-year court battle, Couvillion's original findings were made public and revealed that Couvillion actually had found there was no fraud and rejected the multimillion-dollar IRS claim against Kanter and his partners, Claude Ballard of Florida and Robert Lisle of Texas.

The matter is particularly troubling because in 2000 then-Chief Tax Court Judge Thomas B. Wells, Dawson and Couvillion issued a court order stating that "after a meticulous and time-consuming review of the complex record in these cases, Judge Dawson adopted the findings ... of Special Trial Judge Couvillion."

Statement contradicted

Couvillion's finding contradicts that statement.

"The court order--that's a total lie," Roin said. "It strikes me as institutionally destructive to lie. ... I find this all mysterious. I don't understand what they have to gain by lying. It just seems bizarre."

Dawson, reached by telephone at his judicial chambers in Washington, said, "I'm not free to discuss this and I don't have any comment to make.

"It's up to the [U.S.] Court of Appeals. It's pending there. I think it would be inappropriate for me to make any comments."

"The case is still in litigation and I think it would be unethical for me to make any comments," Dawson said.

Efforts to reach Wells, who is no longer the chief judge but remains a tax court judge, and Couvillion were unsuccessful.

Randall Dick, a San Francisco attorney who represents Kanter's estate, said, "I am aghast at what has happened. After 35 years of trying these cases, believing that taxpayers got a fair adjudication, I have found out I was wrong."

At the core of the dispute is the tax court's practice of assigning special trial judges to oversee trials, listen to evidence and make findings. The special trial judges are appointed by the chief judge of the tax court and have no fixed term of office, unlike tax court judges, who are appointed by the president to 15-year terms.

If a contested case involves more than $50,000, the trial judge's findings are sent to the chief judge, who then sends the findings to a tax court judge, who reviews the findings and issues the official ruling.

Under tax court rules, the reviewing judge may adopt the trial judge's report, modify it or reject it completely.

However, the rules also require that a reviewing judge must give "due regard" to the trial judge's assessment of witnesses and that the findings of the trial judge "shall be presumed to be correct."

Until 1984, trial judges' findings were made public, but at that time the rules were changed to keep the trial judges' findings secret and not part of the court record.

Since then, as noted in a March 2005 ruling by the U.S. Supreme Court that ordered the disclosure of Couvillion's finding, there has never been a disclosure in any case as to whether the final decision was a modification or rejection, in part or entirely, of the trial judges' finding.

Couvillion was assigned to hear the trial and after listening to witnesses in 1994, he submitted his findings in favor of Kanter and his partners in 1998 to then-Chief Tax Court Judge Mary Ann Cohen, who reassigned it to Dawson.

Couvillion's report said he found the witnesses at trial to be believable and credible. "[T]he court cannot find or conclude that [IRS's] claimed kickback schemes existed or ... that there was fraud," Couvillion's opinion stated.

In December 1999, Dawson issued his decision finding against Kanter, Ballard and Lisle, saying that witnesses found credible by Couvillion were, in fact, unreliable. Dawson's ruling characterized Kanter's testimony as "implausible."

No explanation offered

There has been no explanation offered as to why Dawson ruled against Kanter based in part on gauging the credibility of witnesses he never saw.

"Judge Couvillion was a fact-finder in terms of credibility findings and he cannot be overturned by another judge who doesn't hear the evidence," said Steve Brown, the Chicago lawyer for Ballard and Lisle. "You can't change findings without rehearing the witnesses.

"The central part of a fraud case is the credibility of witnesses. How does he [Dawson] know? He wasn't even there."

Dick triggered the court battle over Couvillion's judicial findings by filing an affidavit in 2000 saying that two other tax court judges tipped him off that Dawson's decision was not a confirmation of Couvillion.

"I was vilified for filing that affidavit," Dick said. "Now I feel like a whistleblower on a process that is secret. I am shocked and dismayed at the tax court. This justifies Mr. Kanter. [Dawson's] opinion was a proximate cause of his early death."

Beyond the finding by Dawson, there remains the question of the court order in which Dawson and Couvillion stated that Dawson's ruling affirmed Couvillion's trial finding, Dick said.

"I think there is an absolute arrogance in Tax Court that they could do whatever they wanted to do without reporting to anyone--in secret," Dick said.

Leandra Lederman, the William W. Oliver professor of tax law at Indiana University School of Law in Bloomington, said the disclosure of Couvillion's report "does raise questions. Has it happened before? How many times has it happened before?"

"I think it leads to questions about what was going on behind closed doors," she said.

Lederman, who filed an amicus brief in the case urging release of Couvillion's findings, said the practice of keeping such findings secret is a "lack of transparency. And that leads to a lack of accountability. Transparency not only protects actual fairness, but the appearance of fairness, which is needed for people to have confidence in the system."

Richard Pildes, a New York University law professor who also represented Kanter, said, "There's no way to know from the public record whether this went on in one of these cases or hundreds of these cases. It's such a betrayal of the public trust."