Kenneth W. Guenther and Marva Guenther v. Commissioner of Internal Revenue

Citations: 939 F.2d 758; 91 Daily Journal DAR 8894; 91 Cal. Daily Op. Serv. 5900; 68 A.F.T.R.2d (RIA) 5252; 1991 U.S. App. LEXIS 15893; 1991 WL 132742Docket: 88-7244

Court: Court of Appeals for the Ninth Circuit; July 23, 1991; Federal Appellate Court

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

The case involves Kenneth and Marva Guenther appealing a decision from the United States Tax Court, where the court had ruled in favor of the Commissioner of Internal Revenue, sustaining findings of deficiency and civil fraud penalties against them for the tax years 1978 and 1979. The key issue on appeal was whether the ex parte submission of a trial memorandum by the Commissioner's counsel before the trial prejudiced the trial judge's decision enough to warrant a new trial with a different judge. 

Prior to the trial scheduled for June 10, 1986, the tax court instructed both parties to submit trial memoranda detailing the issues, witnesses, legal principles, and any significant evidence problems. While the Guenthers submitted their memorandum and provided a copy to the Commissioner, the Commissioner did not share its memorandum with the Guenthers, citing procedural practices and concerns about revealing strategy. The Guenthers' motion for disclosure of the Commissioner's memorandum was denied just before the trial commenced.

After the trial, the Commissioner provided the Guenthers with the memorandum, which led the Guenthers to file a motion for an evidentiary hearing regarding the ex parte allegations and possible sanctions. This motion was also denied. The trial court’s decision did not mention the ex parte memorandum. Upon appeal, the Ninth Circuit expressed concerns over due process related to the ex parte communication and remanded the case back to the tax court for an evidentiary hearing to assess the content and purpose of the memorandum.

Judge Nims conducted an evidentiary hearing in response to a remand order and submitted findings regarding the issues specified in that order. The focus is on determining if the Guenthers were unfairly prejudiced by Judge Nims's consideration of an ex parte communication from the Commissioner, which was a thirty-two page document outlining the Commissioner’s perspective on the case, including twelve issues ranging from minor to substantial, such as tax fraud allegations. 

The Trial Memorandum contained procedural matters and substantive accusations of misconduct against the Guenthers, including claims that they might fabricate evidence and had failed to comply with discovery rules. The Guenthers had not seen this document prior to trial and, although they later managed to rebut some allegations through affidavits, they did not have an adequate opportunity to respond during the proceedings.

The due process clause mandates neutrality in civil cases, and ex parte communications are only permissible under compelling justification. The court concluded that the Guenthers were prejudiced by the serious allegations presented against them, which affected both the merits of their case and their character, and they lacked a fair chance to counter these claims effectively.

Chief Judge Nims's findings on remand do not alleviate concerns regarding the unfair prejudice faced by the Guenthers. There is no indication that Judge Nims was uninfluenced by the Trial Memorandum or its argumentative content. Instead, the denial of the Guenthers' request for the Trial Memorandum suggests that Judge Nims accepted the Commissioner's ex parte portrayal of the Guenthers and concerns about their credibility. The rationale provided for withholding the Trial Memorandum is inadequate; Judge Nims noted that trial judges typically rely on pre-trial memoranda for case details. However, he perceived the Guenthers’ memorandum as vague and uncooperative, contrasting it with the overly detailed memorandum from the Commissioner. 

The principle of the adversarial system emphasizes that parties should fully explore their claims during trial without surprises, yet the ex parte communication undermined this principle. Such conduct indicates a lack of faith in the adversarial process and is contrary to the justice system, which prohibits ex parte communications. The risk of prejudice from such communications is substantial, as highlighted in previous orders and tax court rules. 

Chief Judge Nims has since instituted a Standing Pre-Trial Order mandating that trial memoranda be shared with both the court and opposing parties to prevent future due process violations like those experienced by the Guenthers. Consequently, the Guenthers are entitled to a new trial before a different judge untainted by ex parte communications, leading to the reversal and remand of the case without addressing the underlying tax law issues raised in the appeal.