[00:00:00] Speaker 04:
Pleased to court.

[00:00:00] Speaker 04:
My name is Arthur Beisle and I represent the plaintiff appellant, Carrie Loomis, as trustee of the Lost Creek Trust.

[00:00:07] Speaker 04:
I'd like to begin by apologizing for my opening brief.

[00:00:11] Speaker 04:
What was filed was a draft.

[00:00:13] Speaker 04:
The original or the correct final opening brief is somewhere on a file system that I have since scrapped.

[00:00:20] Speaker 04:
I believe the citations to the record are inadequate and my father was an appellate judge and I can remember him complaining about lawyers making it difficult to find what they were referring to.

[00:00:29] Speaker 04:
The facts of this case are— So what should we do?

[00:00:33] Speaker 04:
Oh, I think there's adequate citation, just maybe not perfect.

[00:00:36] Speaker 04:
It could be better, I guess, is my point, Your Honor.

[00:00:43] Speaker 04:
The facts of this case are that Chris Close bought a parcel of property in roughly 2003.

[00:00:49] Speaker 04:
He then transferred it to a trust for his children without any adequate consideration for doing so.

[00:00:55] Speaker 04:
Thereafter, the trustee then began logging the property, which generated federal income taxes.

[00:01:02] Speaker 04:
And then Chris Close was convicted of fraud and sentenced to jail.

[00:01:06] Speaker 04:
And then the property itself was drug into a forfeiture proceeding in roughly 2005.

[00:01:13] Speaker 04:
That forfeiture proceeding concluded roughly 14 years later in 2019.

[00:01:18] Speaker 04:
Somewhere in between there, Chris Close was released from jail.

[00:01:22] Speaker 04:
And then the IRS attempted to make him pay the income taxes for those logging operations.

[00:01:28] Speaker 04:
Chris Close defended that on his own.

[00:01:30] Speaker 04:
They had a full hearing on it and the tax court wrote a extensive and thorough decision that said Chris Close never owned this property.

[00:01:39] Speaker 04:
The Lost Creek trustee owns this property.

[00:01:42] Speaker 04:
After that ruling came out, I went into the forfeiture proceeding and argued that the matter of who owned it was decided in the tax court proceeding.

[00:01:52] Speaker 04:
The federal court in the forfeiture proceeding said the issues are not identical between these two different cases.

[00:02:00] Speaker 04:
I appealed that.

[00:02:01] Speaker 04:
That ruling was affirmed on appeal.

[00:02:03] Speaker 04:
Thereafter, the United States sold the property.

[00:02:06] Speaker 04:
They paid all of Close's restitution, fines, and judgments.

[00:02:11] Speaker 04:
And then they also paid Chris Close's roughly $227,000 in tax liens.

[00:02:17] Speaker 04:
Then they sent the balance of those proceeds to my office.

[00:02:22] Speaker 04:
after the sale.

[00:02:23] Speaker 04:
After that occurred, then I filed suit once and then I filed suit here saying the United States was a stop to deny that my client owned the property.

[00:02:33] Speaker 04:
Therefore, Chris Close's taxes have been paid by us and we don't owe them.

[00:02:40] Speaker 04:
And the basis for that.

[00:02:41] Speaker 01:
So I want to ask you to clarify one fact.

[00:02:44] Speaker 01:
I think with the tax court held in 2007,

[00:02:51] Speaker 01:
was that the government failed to meet its burden of establishing the trust was a sham.

[00:02:57] Speaker 01:
Not that the court held that the trust was a sham.

[00:03:06] Speaker 01:
And you're saying that the court ruled that way, but really what the tax court said was that the government didn't meet its burden of proof, and then it also was very critical of the government's lawyers for failing to induce the evidence.

[00:03:21] Speaker 04:
Correct, Your Honor.

[00:03:22] Speaker 04:
What was at issue there was if the trust was a sham, then in fact, Chris Close owned it.

[00:03:29] Speaker 04:
So it was their burden to prove that the trust was in fact a sham, and they didn't meet that.

[00:03:35] Speaker 04:
So that would mean that Chris Close does not own it because the trust exists.

[00:03:39] Speaker 04:
There's no question that the property was titled in the trustee's name the whole time.

[00:03:45] Speaker 04:
So that is what I believe the tax court ruled.

[00:03:48] Speaker 04:
And then in this case, the district court first said that this was non-mutual collateral estoppel and the government would be prejudiced by the fact that there was a prior ruling, the preliminary order of forfeiture that said Chris Close owned this property.

[00:04:07] Speaker 04:
The preliminary order of forfeiture doesn't say that.

[00:04:10] Speaker 04:
28 USC 853 says you forfeit the defendant's right title and interest

[00:04:15] Speaker 04:
in this property.

[00:04:17] Speaker 04:
And that's what the preliminary order of forfeiture says here.

[00:04:20] Speaker 04:
Whether he has an interest in that property is determined in the ancillary proceeding that I was in.

[00:04:25] Speaker 04:
In which case, if I would have prevailed there, then no, he would not have had an interest.

[00:04:29] Speaker 04:
So a preliminary order of forfeiture doesn't establish an interest.

[00:04:33] Speaker 04:
It's not an order that says he owns it.

[00:04:36] Speaker 04:
It's an order that says we're forfeiting whatever he does own, sort of like a quit claim deed.

[00:04:41] Speaker 03:
Could I ask you just for a moment to digression from the preclusion question, but why is there a jurisdiction under 1346 here?

[00:04:52] Speaker 04:
And I think that's the more important question here, Your Honor, is that the United States v. Williams says that anybody who pays somebody else's taxes is not ever left without a remedy.

[00:05:06] Speaker 04:
That's what that case says.

[00:05:07] Speaker 03:
That's right.

[00:05:08] Speaker 03:
And after that case was decided, Congress created 6325 and 7426, which did not exist at the time of Williams, but do now.

[00:05:17] Speaker 04:
Correct.

[00:05:18] Speaker 04:
Now, the argument of the United States is that those are mandatory provisions.

[00:05:22] Speaker 04:
Well, the language of 6325 says a taxpayer may.

[00:05:27] Speaker 04:
It doesn't say shall.

[00:05:29] Speaker 04:
More importantly, an interpretation that that is the only remedy that you have and Williams is no longer applicable is plainly unconstitutional.

[00:05:40] Speaker 04:
And this case demonstrates it.

[00:05:41] Speaker 03:
I mean, isn't that kind of what EC term of years said?

[00:05:44] Speaker 03:
I mean, at least with respect to the issue there.

[00:05:46] Speaker 03:
I think before 7426, that would have been, under Williams, a case that you could have brought under 1346.

[00:05:56] Speaker 04:
I believe that case still says there has to be no other remedy.

[00:06:01] Speaker 04:
And I don't think it's unconstitutional.

[00:06:02] Speaker 04:
For example, if this property was owned free and clear and these tax liens were illegal, they're only $227,000.

[00:06:10] Speaker 04:
This piece is probably worth $5 million.

[00:06:12] Speaker 04:
It would have been really simple to obtain a security bond and proceed under 1325 and then 7426 to get the money back in 120 days.

[00:06:23] Speaker 04:
That couldn't happen here.

[00:06:24] Speaker 04:
The only asset the trust owned was the property.

[00:06:27] Speaker 04:
The property was tied up in a federal forfeiture proceeding.

[00:06:31] Speaker 04:
And there is no way that you're going to get anybody to bond that extra security when they don't even know if the property they're going to have is going to be there.

[00:06:42] Speaker 04:
So I think an interpretation of the statute that says, if you can do this, then you have to do this, is constitutional.

[00:06:50] Speaker 04:
But if you can't do it, then in a case like this, these people would be completely out of luck.

[00:06:56] Speaker 04:
They would have absolutely no way to post that security.

[00:07:00] Speaker 04:
And that was certainly the case here.

[00:07:03] Speaker 04:
So that is really what it comes down to.

[00:07:05] Speaker 04:
You can get into the statutory interpretation, but when it comes right down to it, any interpretation that says you have to have a lot of money to get rid of a federal tax lien, it can't be constitutional.

[00:07:16] Speaker 03:
And what's your best case for that proposition?

[00:07:22] Speaker 04:
Oh, I'm sorry.

[00:07:23] Speaker 04:
I don't have them in front of me.

[00:07:24] Speaker 04:
I just have my notes.

[00:07:24] Speaker 04:
But they're in the briefing that if you create

[00:07:28] Speaker 04:
a situation where somebody who is poor absolutely cannot avail themselves of a remedy, then the remedy is not constitutional.

[00:07:37] Speaker 04:
I mean, from a common sense perspective, it makes sense.

[00:07:41] Speaker 04:
If the person can't get rid of the lien and the property is sold, then they're just out of luck.

[00:07:47] Speaker 04:
And there is the quiet title avenue, but who knows how long that's going to take and how much money to litigate with the United States over that.

[00:07:55] Speaker 04:
And none of these are attorney's fees cases.

[00:07:57] Speaker 04:
So it's just impoverished people can't utilize that.

[00:08:01] Speaker 04:
That's why I think it's unconstitutional.

[00:08:04] Speaker 04:
Any interpretation that says it's the only one that says you have to have the money to do it can't be constitutional.

[00:08:10] Speaker 02:
But the district court sort of sidestepped the jurisdictional issue by saying that here we've got a non-merits threshold issue, i.e.

[00:08:21] Speaker 02:
issue preclusion, that will, under Ninth Circuit precedent, mean we don't have to reach a somewhat messy, complicated jurisdictional issue.

[00:08:35] Speaker 02:
What do you think of that?

[00:08:37] Speaker 04:
Well, I think he's accurate in his case law, and I tried to figure out if it was something this court could pass on, but if it's an issue of subject matter jurisdiction, I would think that the court could pass on it.

[00:08:49] Speaker 04:
As far as collateral estoppel arguments, I've already addressed the non-mutual.

[00:08:53] Speaker 04:
But the second one, that they can use it against us, I think that's pretty clear.

[00:08:57] Speaker 04:
I mean, the Ninth Circuit said these are not identical issues in these two proceedings.

[00:09:01] Speaker 04:
That's the end of the analysis of whether collateral estoppel can be used against my client.

[00:09:07] Speaker 04:
The more important one's the first one, saying it's non-mutual because of this preliminary order of forfeiture that doesn't establish an interest.

[00:09:16] Speaker 04:
It just says if he has one, we take it.

[00:09:19] Speaker 04:
Um, unless the court has any other questions, I'll reserve the balance of my time.

[00:09:26] Speaker 04:
Thank you very much.

[00:09:27] Speaker 03:
We'll hear from the commissioner.

[00:09:45] Speaker 00:
Good morning.

[00:09:45] Speaker 00:
May it please the court.

[00:09:47] Speaker 00:
Mike Hong's from the Department of Justice on behalf of the United States.

[00:09:51] Speaker 00:
This appeal is another attempt by the Lost Creek Trust to obtain the value of this piece of property that was purportedly transferred to it in 2003.

[00:10:01] Speaker 00:
The trust claims to have an ownership in this property have been rejected several times over the past 20 years, including once already by this court.

[00:10:11] Speaker 00:
The district court here correctly concluded that the trust claims are barred by issue preclusion.

[00:10:16] Speaker 00:
And although the district court invoked the Snoqualmie tribe case from two years ago to not pass upon it, we would submit that there was also no jurisdiction here under the general refund statute, 28 USC 1346.

[00:10:28] Speaker 03:
Can I just ask at the outset, does the government take the position that we do in fact have authority to resolve the case on the basis of issue preclusion and assume jurisdiction?

[00:10:43] Speaker 00:
I think that's correct.

[00:10:45] Speaker 00:
The way I read the law, Steele Company from the Supreme Court, of course, said that courts have to make sure they have jurisdiction.

[00:10:50] Speaker 00:
The Supreme Court sort of stepped back a bit from that in the Sinochem case, where they said with forum non-convenience.

[00:10:58] Speaker 00:
And then this court said, well, the same rationale.

[00:11:01] Speaker 00:
If you can say that another forum would be a proper place to adjudicate it, it's equally appropriate to say, well, some other forum already has adjudicated it, so it's not a merits determination.

[00:11:11] Speaker 00:
We don't insist that you reach jurisdiction if you agree with the district court.

[00:11:15] Speaker 00:
The Snoqualmie case seems to say that the district judge's decision in that regard is reviewed for abuse of discretion.

[00:11:23] Speaker 00:
But I'm happy to address either issue that you want to hear from.

[00:11:27] Speaker 00:
Perhaps I should start with the issue preclusion issue here.

[00:11:31] Speaker 00:
Regarding the tax court proceeding, where I think the trust is mistaken is that their claim that the government is barred by collateral estoppel

[00:11:41] Speaker 00:
is itself barred by collateral estoppel judge lodge back in twenty sixteen in the forfeiture proceeding heard the same argument from them about the meaning of the tax court decision and he rejected that argument and that was affirmed by this court on appeal so i don't think they can really press that tax court argument anymore

[00:11:59] Speaker 00:
And in any event, it is incorrect to say that the tax court decided the issue.

[00:12:03] Speaker 00:
Its tax court did not decide who owned the property.

[00:12:07] Speaker 00:
It simply said that the government didn't meet its burden of proof to establish that the closes owed additional taxes.

[00:12:14] Speaker 00:
And that was partly because the commissioner had raised the whole sham trust theory late in the litigation.

[00:12:19] Speaker 00:
In footnote 11 of the opinion, the court said, we're not even going to get into that.

[00:12:23] Speaker 00:
We don't normally address issues that are raised that late in the day.

[00:12:26] Speaker 00:
And then regarding the evidentiary questions, the court said that the government had not really proven the type and amount and the character of the supposed logging income, and it criticized the evidence that had been put in front of it, said it wasn't adequately substantiated.

[00:12:41] Speaker 00:
The government had used a summary exhibit without introducing the appropriate witness from HHS who had actually prepared it.

[00:12:48] Speaker 00:
So at most, I think the tax court just said that the government didn't prove its case there.

[00:12:53] Speaker 00:
It did not establish that Mr. Close doesn't own the property or that the trust does own the property.

[00:12:59] Speaker 01:
And again.

[00:13:01] Speaker 01:
Counsel, a curiosity in this case is the length of time it took from the preliminary furniture findings to the final findings in some 14 years.

[00:13:16] Speaker 01:
Do you have any

[00:13:17] Speaker 01:
insight into why that took so long?

[00:13:22] Speaker 00:
I don't.

[00:13:22] Speaker 00:
I wasn't involved.

[00:13:23] Speaker 00:
The tax division was not involved in that.

[00:13:26] Speaker 00:
And I note that Judge Tolman's decision here expressed the same sort of dismay about that.

[00:13:31] Speaker 00:
He didn't understand why either.

[00:13:33] Speaker 00:
So I really have no idea.

[00:13:35] Speaker 00:
Other than to agree, it looks like a very long time.

[00:13:42] Speaker 00:
And then regarding the use of collateral estoppel against the trust, I think Judge Tallman got that exactly right here.

[00:13:51] Speaker 00:
In other words, the issue, we're talking here not about claim preclusion, but about issue preclusion.

[00:13:56] Speaker 00:
The issue in the forfeiture proceedings was, does the trust have an interest in this piece of property?

[00:14:04] Speaker 00:
And the foreclosure proceeding, the forfeiture proceeding held, no it does not.

[00:14:08] Speaker 00:
And that's the identical issue that is necessary to the refund claim here.

[00:14:12] Speaker 00:
They're trying to claim that they have an interest in the property and that has already been determined.

[00:14:16] Speaker 00:
So we submit that they are collaterally stopped from pursuing that.

[00:14:20] Speaker 00:
And regarding the jurisdictional question, as we explained in our brief, the general refund jurisdiction is not available anymore for a case like this, given that Congress has created a specific tailored remedy.

[00:14:34] Speaker 00:
As Supreme Court said in EC, Term of Years Trust, when you have a specific statutory scheme, you cannot rely on a broader

[00:14:42] Speaker 00:
more general statutory scheme, particularly one that would have the effect of expanding the statute of limitations because it would undo the scheme that Congress set up with a more limited statute of limitations.

[00:14:53] Speaker 00:
And regarding their constitutional claims, I think perhaps the easiest answer to that is to just say this is certainly not the sort of case where a court should pass upon that, given that this trust didn't even have to rely on either of these mechanisms for reviewing the tax lien because they had the forfeiture proceeding going on.

[00:15:12] Speaker 00:
They could, and they did, raise the issue there.

[00:15:15] Speaker 00:
And they had it adjudicated.

[00:15:17] Speaker 00:
And the fact that they lost doesn't make it a constitutional problem.

[00:15:24] Speaker 00:
If the court has no further questions, I would simply rely on our briefs.

[00:15:29] Speaker 03:
It looks like we don't.

[00:15:30] Speaker 03:
Thank you.

[00:15:30] Speaker 00:
Thank you very much.

[00:15:37] Speaker 04:
Just briefly, I think it's worth talking about the Monco decision from the Sixth Circuit.

[00:15:43] Speaker 04:
They say they're the only circuit that says that this 6325 is mandatory.

[00:15:47] Speaker 04:
The mandatory language they were referring to is from 7426.

[00:15:50] Speaker 04:
That says if you do use 6325, 7426 is the only way to get your money back.

[00:15:57] Speaker 04:
That's the mistake they made.

[00:16:00] Speaker 04:
Again, if you don't have an ability to utilize a procedure because you're poor, then it's unconstitutional.

[00:16:07] Speaker 04:
Williams has not been overruled.

[00:16:08] Speaker 04:
That's what it says.

[00:16:11] Speaker 03:
But here, I mean, you did have an opportunity to litigate the relevant question in the forfeiture proceeding.

[00:16:18] Speaker 03:
So why wasn't that adequate?

[00:16:20] Speaker 04:
I don't agree with the decision that the issues aren't identical.

[00:16:24] Speaker 04:
I think they are.

[00:16:25] Speaker 04:
However, the Ninth Circuit agreed with the district court that said the issues are not identical.

[00:16:30] Speaker 04:
So whether we agree with it or not, that is the law, that they're not the same issues.

[00:16:36] Speaker 04:
And so one can't have any effect on the other.

[00:16:39] Speaker 04:
There's no question, though, that this is a proceeding related to taxes, and there was a prior proceeding related to taxes.

[00:16:46] Speaker 04:
There's no question that collateral estoppel would apply there.

[00:16:48] Speaker 04:
The issues are identical.

[00:16:49] Speaker 04:
And in order for the United States to make Chris Close pay these taxes, they had to prove the trust was sham.

[00:16:58] Speaker 04:
Because the property is presumptively owned by the trustee because it's titled in the trustee's name.

[00:17:03] Speaker 04:
So they have to divest that title.

[00:17:05] Speaker 04:
That was their burden of proof.

[00:17:06] Speaker 04:
And when you don't meet your burden of proof and you lose, you lose.

[00:17:10] Speaker 04:
They had all the opportunity to litigate this.

[00:17:12] Speaker 04:
It took a lot of judicial time.

[00:17:13] Speaker 04:
And they didn't do a good job.

[00:17:15] Speaker 04:
And they lost.

[00:17:17] Speaker 04:
And so I don't see how it would be unfair for them to not get another chance to do all of this again in federal district court.

[00:17:27] Speaker 03:
Thank you.

[00:17:27] Speaker 03:
Thank you very much.

[00:17:28] Speaker 03:
Thank both counsel for the arguments.

[00:17:30] Speaker 03:
And the case is submitted.