This series consists of cases brought by or against the government. They do not include criminal cases, lawsuits against law enforcement, lawsuits based on the management of jails and prisons, immigration, or lawsuits against the government in its capacity as an employer. Those lawsuits are (or will be) summarised elsewhere. For further context, please read the overview.
Groves v. United States (2019)
Philip Groves promoted and sold tax shelters. A decade later, the IRS tried to assess a tax penalty against him for this behaviour. Mr. Groves disputed the validity of this penalty, arguing (among other things) that the statute of limitations was five years. Judge Gary Feinerman struck that argument, accordingly rejecting Groves’ motion for judgment on the pleadings, but certified the order for interlocutory review under 28 U.S.C. § 1292(b).  § 1292(b) also required Groves to apply to the Court of Appeals within ten days, however, which he failed to do because a paralegal submitted the application to the wrong e-mail address. Three days later, at Groves’ request, the district court re-certified its order. Groves applied to the Court of Appeals the next day. [2-3]
Both parties argued that the Court of Appeals had jurisdiction to hear the appeal, although they put forth different rationales. Judge Barrett, writing for that Court of Appeals, disagreed. Citing Hamer v. Neighborhood Housing Services, Judge Barrett held that this time limit governed the transfer of adjudicatory authority from one Article III court to another, which was presumed to be jurisdictional. Judge Barrett rejected all Groves’ cases as not addressing a court’s adjudicatory authority. [4-5 and note 1 on page 5] Groves then argued that § 1292 did not really “transfer” jurisdiction because it did not stay proceedings and the district court retained jurisdiction. Judge Barrett dismissed this argument as “meritless,” clarifying that the question was not whether authority was strictly transferred but whether it addressed the power of the courts rather than the rights or duties of the litigants. § 1292 unquestionably did so, which was why no court of appeals had ever doubted that it was jurisdictional. [5-8] Therefore, the Court would not be able to consider the appeal even with the parties’ consent, unless re-certifying the appeal extended the jurisdictional deadline.
In Nuclear Engineering Co. v. Scott, the 7th Circuit had held that a court could re-start the countdown by re-certifying the order for interlocutory appeal. Other circuits had reached similar conclusions. Arguably, the Supreme Court had even approved the practice but Judge Barrett held that, if so, the decision lacked precedential effect. [Note 3 on page 9] Yet the Supreme Court had subsequently emphasized the importance of filing deadlines and courts’ lack of equitable authority to extend them. [8-12] Courts of appeals had no authority to extend the time limit for seeking permission to appeal.  Similarly, unlike notices of appeal, district courts did not have explicit statutory authority to extend the time limit for a petition for permission to appeal. [12-13] Re-starting the clock when the district court re-certified the appeal would effectively have allowed district courts to circumvent those deadlines. Therefore, the Court of Appeals held that the unextendable time limit for applying for an interlocutory appeal was ten days after the order was first certified, over-ruling Nuclear Engineering Co. [13-15] The Court did not address the effect of orders that were substantially re-considered and then re-certified. [Note 6 on page 14]
Therefore, the Court of Appeals dismissed Groves’ appeal, which it did not have jurisdiction to consider. Let’s not speculate about the consequences for Groves’ representatives.
Judge Barrett listed this case as number eight on the list of her ten (actually eleven) most significant decisions on the Court of Appeals for the 7th Circuit. She summarised the case as follows:
The Equal Protection Clause entitles owners of similarly situated property to roughly equal tax treatment. A group of taxpayers asserted that the tax assessor for Cook County violated that guarantee by offering a break to owners of similarly situated property, but not to them. The taxpayers had pursued a refund in Illinois court for more than a decade before they eventually came to federal court seeking to vindicate their federal constitutional claims. Writing for the unanimous panel, I explained that the Tax Injunction Act did not bar the suit because the taxpayers had no remedy at all for their claims in state court-let alone, a “plain, speedy and efficient” one.
[2020 Questionnaire at 45-47]
Chicago being what it is, Cook County’s property taxes in the early 21st-Century were not models of clarity and probity. Most property was assessed at rates significantly lower than was prescribed by the County ordinance. Some, however, was assessed at the lawful rates. Some was even assessed above those rates. The ordinance was changed in 2008. [2-3]
Taxpayers who had been assessed at lawful (or higher) rates before 2008 considered themselves overcharged. They argued that they had paid higher rates than similarly situated taxpayers, potentially a violation of the Equal Protection Clause, first before the Cook County Review Board and then before the Circuit Court of Cook County. [2-3] Yet an Illinois statute, 35 ILCS 200/23-15, severely limited their options in this forum. They could not challenge the County Assessor’s methods of valuation and could not sue anybody other than the County tax collector. Therefore, they could not seek evidence from the Assessor and probably wouldn’t be able to use it if they could. As a result, their suit was tied up in discovery for over a decade. [4-6]
The taxpayers eventually sued Cook County and the Assessor in federal court. Judge Charles Kocoras held that the lawsuit was barred by the Tax Injunction Act, which prohibited federal courts from judging tax suits if “a plain, speedy and efficient remedy may be had in the courts of such State.” The district court therefore dismissed the lawsuit for lack of jurisdiction. Alternatively, Judge Kocoras did not exercise jurisdiction out of comity to the state courts. [4-5]
Judge Barrett wrote for the Court of Appeals for the 7th Circuit that the Tax Injunction Act required only a hearing and judicial determination on all of a taxpayer’s claims. Judge Barrett then reviewed past decisions applying the Act to Illinois, concluding that none of them had addressed the statutory restrictions at issue. [6-10] Judge Barrett acknowledged that whether state courts offered an adequate forum for all the plaintiffs’ claims was a “potentially complex issue” but, in this case, Cook County admitted that the plaintiffs would not be able to bring their claims in the Circuit Court. [10-12] They also did not identify any other way plaintiffs could raise their claim in state courts. [11 and note 2 on pages 11-12] Therefore, Judge Barrett held that the Tax Injunction Act did not apply.
Judge Barrett also held that principles of comity did not bar the exercise of jurisdiction, assuming they even applied when the plaintiffs did not formally seek damages, because the Supreme Court held in Fair Assessment in Real Estate Association v. McNary that the principle of comity applied in tax suits under the same standard as the Tax Injunction Act. [12-13]
The taxpayers were accordingly permitted to continue their suit in federal court.
A class of plaintiffs sued the Clerk of the Circuit Court of Cook County, alleging that it favoured or disfavoured employees for political reasons. The result called to mind Jarndyce & Jarndyce. Comparatively early in the lawsuit – in 1972 and 1983, respectively – the Clerk entered a consent decree to stop such discrimination against current employees and a judgment imposed similar limitations on hiring practices. [1-2]
In 2018, with litigation still ongoing, Magistrate Judge Sidney Schenkier appointed a special master to ensure the Clerk complied with those obligations. As part of her investigation, the special master intended to watch how the Clerk’s office responded to employee grievances. The employees’ union did not want her at these meetings and sent her a cease-and-desist letter telling her to stay away. The plaintiffs then moved for a declaratory judgment that the special master could observe the meetings. The union did not seek to become a party to the suit. Rather, it filed a memorandum in opposition to the plaintiffs’ motion. When Magistrate Judge Schenkier granted the plaintiffs’ motion, the union appealed. 
One of the plaintiffs’ arguments was that the Court of Appeals lacked jurisdiction because the union was not a party to the lawsuit. Judge Barrett, writing for the 7th Circuit, agreed and didn’t need to address their remaining arguments. [2-3] Judge Barrett cited extensive authority that only parties can appeal a lawsuit, which was well-settled by 1850.  The relevant statute limited appeals to the parties, 28 U.S.C. § 636(c)(3), as did Federal Rule of Appellate Procedure 3. [3-4] Judge Barrett stated that this jurisdictional deficiency was unrelated to whether or not the non-party had standing. [Note 1 on pages 3-4]
The union argued that it was effectively a party to the appeal, citing Devlin v. Scardeletti. Judge Barrett held that the union was not similar to an un-named class member in a mandatory class action, because the union had other means of protecting its rights. In particular, it could have moved to intervene in the suit, which would have enabled it to appeal the decision. [5-6] Judge Barrett also held that none of the other “narrow” circumstances in which a party could appeal were present. [Note 2 on page 5]
Therefore, the Court of Appeals dismissed the union’s appeal for lack of jurisdiction.
Ron Van Den Heuvel and his four brothers worked for VHC, a company founded by their father owned by their family. Mr. Van Den Heuvel came to occupy positions of control in several companies related to VHC and also launched separate companies of his own. Over a period of sixteen years, VHC paid $111 million to Van Den Heuvel and his companies, some of which was used for business purposes but some of which paid personal expenses (including taxes). Counting interest, Van Den Heuvel’s formal debt to VHC grew to $132 million. He only repaid $39 million. [1-2]
Van Den Heuvel also owed roughly $27 million to Associated Bank. Associated Bank was a creditor of VHC, as well as of Van Den Heuvel and his companies. Associated Bank threatened to cut off VHC’s credit if VHC did not guarantee Van Den Heuvel’s loans. VHC agreed to guarantee Van Den Heuvel’s loans to Associated Bank and, later, to two other banks. 
In 2004, VHC began to write off its payments to Van Den Heuvel and his companies. By 2013, it had written off $95 million as bad debts. It deducted these from its taxes. Turns out, you can’t just give money to relatives and claim it’s a business expense, even when those relatives work for you. The IRS audited VHC and rejected $92 million of the $95 million that VHC.  VHC appealed in tax-court, where Judge Kathleen Kerrigan held that VHC was not a bona-fide creditor of Van Den Heuvel and that the payments were not an ordinary and necessary business expense. Judge Kerrigan did slightly reduce the amount owed by VHC, because if the debts were not legitimate then VHC should not be taxed on the accrued interest. 
Judge Barrett, writing for the Court of Appeals for the 7th Circuit, wrote that VHC had to prove that it was entitled to the claimed deductions and that the Court would only reverse the tax court’s judgment if it was firmly convinced of the tax court’s mistake. [3-4] First, VHC argued that the tax court had erred in finding that its debts to Van Den Heuvel and his companies were not bona fide debts. Yet only bona fide debts could be written off and IRS regulations specifically excluded both gifts and investments from bona fide debt.  VHC argued that any debt was bona fide if the parties intended to function as debtor and creditor. Without addressing the correctness of this theory, Judge Barrett held that even if it were correct VHC still failed to meet its burden, because VHC had effectively behaved as an investor in Van Den Heuvel’s company rather than demanding repayment. VHC failed to present evidence to convince Judge Barrett that the tax court had made a mistake. [4-6]
VHC then argued that its payments to Van Den Heuvel were ordinary and necessary business expenses because they were the only way to secure their credit with three banks. [6-7] Judge Barrett first opined that VHC had failed to adequately prove the existence of the claimed expenses, because it had produced only its own summary records, rather than itemised receipts or other proofs of payments.  Moreover, even if VHC had proved its debts, Judge Barrett questioned whether such debts would be considered necessary and held that VHC had failed to prove that its (rather unusual) debts were ordinary in its industry. [8-9]
Finally, VHC argued that if its debts were not legitimate, it should be able to deduct accrued interest on those debts from its tax burdens. VHC had successfully argued in tax court that it should be able to deduct unpaid interest. Now, on appeal, it was arguing that it should also be able to deduct the interest that Van Den Heuvel had paid on his non bona-fide debts. Because the tax court had done precisely what VHC requested, Judge Barrett would not now find it had committed error in not doing more. [9-10]