Shirley L. Johnson v. Commissioner of Internal Revenue

In the
United States Court of Appeals
For the Seventh Circuit
No. 01-2509
Shirley L. Johnson,
Petitioner,
v.
Commissioner of Internal Revenue,
Respondent-Appellee.
Appeal of Joe Alfred Izen, Jr.
Appeal from the United States Tax Court.
Nos. 6452-99, 6453-99--Mary Ann Cohen, Judge.
Argued March 6, 2002--Decided May 3, 2002
Before Posner, Evans, and Williams, Circuit
Judges.
Posner, Circuit Judge. Attorney Joe
Alfred Izen, Jr., has appeared in the
United States Tax Court in many cases
since the early 1980s. A number of them,
including the recently decided Muhich v.
Commissioner, 238 F.3d 860 (7th Cir.
2001), involve the same script: the IRS
determines a deficiency arising from the
use of sham trusts established for the
taxpayer by a promoter; the taxpayer
petitions for redetermination of the
deficiency; Izen appears for the
taxpayer; the case drags on, with the
taxpayer sometimes resisting discovery;
the court usually finds the taxpayer’s
arguments frivolous and either threatens
or imposes sanctions. Oelze v.
Commissioner, 723 F.2d 1162 (5th Cir.
1983) (per curiam); Watson v.
Commissioner, 690 F.2d 429 (5th Cir.
1982) (per curiam); Muhich v.
Commissioner, 77 T.C.M (CCH) 2143 (1999),
aff’d, 238 F.3d 860 (7th Cir. 2001);
Ripley v. Commissioner, 53 T.C.M. (CCH)
262 (1987); Dixon v. Commissioner, 79
T.C.M. (CCH) 1803, 1810 (2000).
The present case follows this pattern
except that instead of sanctioning the
taxpayer the court sanctioned Izen under
26 U.S.C. sec. 6673(a)(2) by ordering him

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to pay the attorneys’ fees that the IRS
had incurred as a consequence of his
discovery abuses. Izen appeals, arguing
that section 6673(a)(2) is a denial of
equal protection; that the Tax Court’s
sanction was impermissible because really
the court disciplined him not for
discovery abuses as it said but for
representing "disfavored" litigants who
promote or utilize sham trusts to avoid
taxes, and for allowing his client to
invoke the Fifth Amendment in response to
the IRS’s discovery demands; and that the
Tax Court overstated the amount of
attorneys’ fees that the IRS had incurred
as a consequence of his discovery abuses.
In April 1999, Shirley Johnson, an
Indiana resident whose severe diabetes
hinders her ability to travel, filed in
the Tax Court two pro se petitions
challenging a notice of deficiency. Then,
hiring Izen, a Texas lawyer, to represent
her, she--realistically, Izen--took
advantage of the Tax Court’s liberal rule
on venue, Tax Ct. R. 140, to designate
Houston as the place for trial. And then
the stonewalling began. At first Johnson
simply ignored discovery demands. In Sep
tember 1999 the Tax Court ordered her to
respond to those demands and threatened
her with sanctions if she did not. Her
response was to answer 27 of 34
interrogatories and 37 of 51 document
requests with the words "Fifth
Amendment." The IRS requested sanctions,
and though declining that relief the
court conducted a hearing and ruled that
the Fifth Amendment defense was baseless.
The court ordered Johnson to cooperate
fully in discovery, and scheduled trial
for May 3, 2000.
In December 1999 the IRS issued a second
set of interrogatories and document
requests, but again had to resort to
filing a motion to compel. The Tax Court
granted the motion and ordered, under an
express threat of sanctions, that Johnson
comply fully by April 7, 2000. Johnson
did not. Instead she gave notice that she
would be physically unable to participate
in a May trial. The court continued the
trial to December 2000 but maintained the
May 3 date for hearing the IRS’s renewed
motion for sanctions.
Izen did not appear on May 3 but instead
sent his associate and sister, Jane Afton
Izen. The IRS explained to the court what

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interrogatories remained unanswered and
also noted Johnson’s failure to comply
with a demand for copies of checks from
1996 and 1997. Expressing skepticism that
Johnson had made "a good faith effort to
comply with the court’s orders," the
court again threatened sanctions unless
she answered the interrogatories by May
17 and the document requests by July 5.
The court also expressed annoyance that
Joe Izen had failed to appear. Jane Izen
promised to provide the delinquent
discovery by the court’s deadlines.
May 17 came and went with no response
from Johnson. Instead, on May 22 the
court received a motion dated May 15
seeking postponement of the now-expired
deadline. As grounds Izen offered his
busy schedule and Johnson’s poor health.
The court responded that his workload did
not excuse his disobeying the court’s
orders and this time it promised
sanctions if the interrogatories were not
answered by June 1. On that day the IRS
received partial responses. Later, after
missing the July 5 deadline to produce
checks from 1996 and 1997, Izen tendered
checks from the wrong bank and for the
wrong years. These were the same checks
Izen had produced twice before; the IRS
had repeatedly told him the checks were
noncomplying.
On August 21, 2000, the court’s patience
ran out. After listening to Izen’s
explanations that he had "inadvertently"
failed to answer one of the
interrogatories and that Johnson’s poor
health hampered compliance with discovery
orders, the court ruled that Izen had
unreasonably and vexatiously multiplied
the proceedings within the meaning of 26
U.S.C. sec. 6673(a)(2) and in a
subsequent order it sanctioned him in the
amount of $9,394 to cover the attorneys’
fees incurred by the IRS in trying to
obtain compliance with its second set of
discovery requests. The court also
dismissed Johnson’s case for failure to
prosecute, a ruling she has not appealed.
Izen contends that section 6673(a)(2)
denies equal protection of the laws
(actionable under the due process clause
of the Fifth Amendment by virtue of the
Supreme Court’s decision in Bolling v.
Sharpe, 347 U.S. 497 (1954)), because it
exempts government attorneys, and only
government attorneys, from personal

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liability for unreasonably and
vexatiously multiplying Tax Court
proceedings. Izen waived the argument by
first including it in a motion under Tax
Court Rule 162, the analog to Fed. R.
Civ. P. 60(b). Drobny v. Commissioner,
113 F.3d 670, 676-77 (7th Cir. 1996);
Heim v. Commissioner, 872 F.2d 245, 246-
47 (8th Cir. 1989); see Provident Savings
Bank v. Popovich, 71 F.3d 696, 698 (7th
Cir 1995); Seatrax, Inc. v. Sonbeck
Int’l, Inc., 200 F.3d 358, 364-65 (5th
Cir. 2000).
Anyway the argument is frivolous.
Section 6673(a)(2) states:
Counsel’s liability for excessive costs.-
-Whenever it appears to the Tax Court
that any attorney or other person
admitted to practice before the Tax Court
has multiplied the proceedings
unreasonably and vexatiously, the Tax
Court may require--
(A) that such attorney or other person
pay personally the excess costs,
expenses, and attorneys’ fees reasonably
incurred because of such conduct, or
(B) if such attorney is appearing on
behalf of the Commissioner of Internal
Revenue, that the United States pay such
excess costs, expenses, and attorneys’
fees in the same manner as such an award
by a district court.
This language authorizes the Tax Court to
sanction government attorneys personally
or to require the United States to pay
for their misconduct. Izen’s contrary
argument rests on a misreading. The equal
protection claim would be frivolous in
any event, as it is easy to imagine a
rational basis for treating public
lawyers in this respect different from
private ones. See Schwarz v. Kogan, 132
F.3d 1387, 1393-94 (11th Cir. 1998);
Weisbrod v. Sullivan, 875 F.2d 526, 529
n. 4 (5th Cir. 1989); State v. See, 387
N.W.2d 583, 586-87 (Iowa 1986).
The next issue is Izen’s bad faith. We
hold (it is a question of first
impression at the appellate level) that a
finding of "bad faith" is indeed required
before an attorney may be sanctioned
under section 6673(a)(2). The language of
that statute is materially identical to
that of 28 U.S.C. sec. 1927, which has
been held to require a finding of bad

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faith, IDS Life Ins. Co. v. Royal
Alliance Associates Inc., 266 F.3d 645,
654 (7th Cir. 2001); Fox Valley
Construction Workers Fringe Benefit Funds
v. Pride of the Fox Masonry & Expert
Restorations, 140 F.3d 661, 666 (7th Cir.
1998); In re Prudential Ins. Co. America
Sales Practice Litigation Actions, 278
F.3d 175, 188 (3d Cir. 2002), and the two
statutes serve the same purpose, just in
different but similar forums, and should
therefore be interpreted similarly. See
Harper v. Commissioner, 99 T.C. 533, 545
(1992).
Bad faith under section 1927 of the
Judicial Code (and hence, we hold, under
section 6673(a)(2) of the Internal
Revenue Code) is not a subjective
concept, as the words "who so multiplies
the proceedings in any case unreasonably
and vexatiously" (emphasis added) might
be thought to imply; "reckless" or
"extremely negligent" conduct will
satisfy it. IDS Life Ins. Co. v. Royal
Alliance Associates Inc., supra, 266 F.3d
at 654; Kotsilieris v. Chalmers, 966 F.2d
1181, 1184-85 (7th Cir. 1992); In re TCI
Ltd., 769 F.2d 441, 445-46 (7th Cir.
1985); McLane, Graf, Raulerson &
Middleton, P.A. v. Rechberger, 280 F.3d
26, 44-45 (1st Cir. 2002); Proctor &
Gamble Co. v. Amway Corp., 280 F.3d 519,
525-26 (5th Cir. 2002); B.K.B. v. Maui
Police Dept., 276 F.3d 1091, 1108 (9th
Cir. 2002). And appellate review of the
decision to impose sanctions is for abuse
of discretion, Ragan v. Commissioner, 135
F.3d 329, 337 (5th Cir. 1998); Fox v.
Commissioner, 969 F.2d 951, 953 (10th
Cir. 1992), as is normally the case with
respect to decisions imposing sanctions,
e.g., IDS Life Ins. Co. v. Royal Alliance
Associates, Inc., supra, 266 F.3d at 654,
and is therefore consistent with the
general principle that the standards for
appellate review of Tax Court decisions
are identical to those for appellate
review of district court decisions. E.g.,
Freytag v. Commissioner, 501 U.S. 868,
891 (1991); Estate of Kunze v.
Commissioner, 233 F.3d 948, 950 (7th Cir.
2000); 26 U.S.C. sec. 7482(a)(1).
Izen’s complaint that the Tax Court
based its finding of bad faith on his
conduct in other cases is off the mark in
two respects. The court placed primary
reliance on his conduct in the present
case; our recital of the facts showing

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that Izen recklessly, and in all
likelihood intentionally, obstructed
discovery was drawn from the Tax Court’s
opinion. The court further noted that
Johnson’s trial memorandum, due on
November 17, 2000, was postmarked
November 27 yet certified by Izen as
having been served on November 22, and
that Izen had deposed Johnson without
adequate notice to the IRS yet persisted
in offering her deposition as evidence
despite the court’s denying him
permission to do so. Izen’s repeated
flouting of discovery orders even after
being threatened with sanctions and
promising to comply established his bad
faith all by itself. See Castillo v. St.
Paul Fire & Marine Ins. Co., 938 F.2d
776, 778-79 (7th Cir. 1991); Godlove v.
Bamberger, Foreman, Oswald, & Hahn, 903
F.2d 1145, 1146-48 (7th Cir. 1990);
Malautea v. Suzuki Motor Co., 987 F.2d
1536, 1545-46 (11th Cir. 1993).
The Tax Court was not required to ignore
Izen’s bad conduct in other cases; indeed
it would have been remiss not to consider
it. S Industries, Inc. v. Centra 2000,
Inc., 249 F.3d 625, 628-29 (7th Cir.
2001); In re Joint Eastern & Southern
Districts Asbestos Litigation, 22 F.3d
755, 759 n. 8 (7th Cir. 1994); Fink v.
Gomez, 239 F.3d 989, 992 (9th Cir. 2001);
Doering v. Union County Bd. of Chosen
Freeholders, 857 F.2d 191, 197 n. 6 (3d
Cir. 1988). (Such consideration might, of
course, redound to a lawyer’s benefit--if
his prior record were good, rather than,
as in Izen’s case, very, very bad.) In
prior litigation, Izen’s clients were
sometimes sanctioned because he employed
tactics like those in this case; and
dogged good-faith persistence in bad
conduct becomes sanctionable once an
attorney learns or should have learned
that it is sanctionable. Christiansburg
Garment Co. v. EEOC, 434 U.S. 412, 422
(1978); In re TCI Ltd., supra, 769 F.2d
at 445.
Izen argues that the court penalized him
for Johnson’s frivolous assertion of her
right against self-incrimination. It did
not, as a matter of fact; but in any
event "if a competent attorney would find
no basis for a legal argument, then it
does not interfere with zealous advocacy
to penalize the repetitious assertion of
that argument." Id. at 447. Johnson had
the burden of proving that the IRS should

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have allowed deductions for certain
business expenses. Competent counsel
would have recognized that burden as
incompatible with asserting a Fifth
Amendment privilege covering the entirety
of Johnson’s business affairs, and so
would have declined to make such a claim.
As for Izen’s challenge to the amount of
the sanction, it is waived because he
delayed presenting it to the tax court
until his Rule 162 motion.
If anything, the Tax Court treated Izen
too gently. But his travails are not
over. As his appeal is frivolous, we are
issuing an order to show cause why he
should not be sanctioned for his antics
in this court.
Affirmed.

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