Second Circuit NonTax Opinion on Glitches in the Appellate Process with JAT War Story (9/11/22)

Most readers of this Federal Tax Procedure Blog do not have such tunnel vision that developments outside the tax procedure area are ignored. Many readers will have read or heard about a major bank, Citibank, mistakenly making payments to hedge funds aggregating almost $1 billion on not yet due amounts. Some of the hedge funds tried to keep the mistaken payments (about $500 million) because, they claimed, they were eventually entitled to them anyway. Citibank sued those hedge funds to recover. The district court (SDNY) held that the hedge funds were entitled to retain the mistaken payments based on some arcane creditor concepts in New York law and in the Restatement of Restitution. The Second Circuit reversed and held that the funds must be returned to Citibank. Citibank, N.A. v. Brigade Capital Management, 49 F.4th 42, 58 (2d Cir. 2022) (2d Cir. 9/28/22), CA2 here and GS here.  I won’t get into the merits of that resolution. I focus instead on the procedural trajectory of the case in the Court of Appeals.

I pick up this procedural trajectory from David Lat’s Judicial Notice (09.10.22): Weird, Wild Stuff (Original Jurisdiction Notice 9/10/22), here. I excerpt the following:

[T]he intricacies of the discharge-for-value doctrine, ably explored in 131 pages of opinions-a majority opinion by Judge Pierre Leval for himself and Judge Robert Sack, and a concurrence in the judgment by Judge Michael Park-are far less interesting than all the meta-commentary about the judicial process and the breaking of the fourth wall.

            In his concurrence, Judge Park complained that "this is a straightforward case that many smart people have grossly overcomplicated and that we should have decided many months ago." In response, Judge Leval added an addendum to his opinion in which he acknowledged that the judgment "has taken a long time to produce," for which he accepted "sole responsibility."

            Pulling back the curtain on the judicial decision-making process, Judge Leval explained that one reason for the delay was a change in disposition: he and Judge Sack originally decided to certify the question to the New York Court of Appeals, prepared a draft opinion to that effect, but then decided against certification-mainly because it would add another year of delay, and also because they "became increasingly persuaded, despite initial uncertainties," that Citibank deserved to win.

             Judge Leval then went on to discuss the nature of appellate judging:

            A decision of a court of appeals must satisfy two requirements, which pull it in different directions. It should, as rapidly as reasonably possible, tell the parties who wins. At the same time, recognition that the decision serves as precedential law requires that it rest on, and clearly explain, sound legal principles. In a money dispute, the parties ordinarily care little for the precedential effect of the decision; their interest is to get a rapid answer to who gets the money. A court, however, must pay careful attention to the decision's precedential function…. Finding the best accommodation between the objectives of speed and legal soundness is not always easy.

            Is this addendum unorthodox? Absolutely. Is it kinda weird? Sure. And I can imagine many traditionalists hating it, arguing that the Second Circuit should have just decided the case and pretended that nothing was amiss.

            But I'm not among them. I admire and respect jurists who make judging more transparent and accountable and can acknowledge mistakes. Here, Judge Park appropriately called out his court for undue delay in handling a hugely consequential case, and Judge Level appropriately confessed error, accepted responsibility, and turned the situation into a teaching moment about appellate judging. Well done, Your Honors (even if yes, you should have decided this case more quickly).

I agree that transparency and accountability are good values. I suspect that they could be overdone (although not in this instance). I do have a “war story” on the value of prompt appellate decisionmaking cited as important by Judge Leval.

While with DOJ Tax Appellate in the early 1970s, I had several arguments (I think 3) in the Second Circuit. At that time, the judges (at least in my arguments) would confer at the bench by turning their chairs around for quick chat and, if they could announce in open court which side would win, with written opinion to follow.  I suppose that, in the drafting process, one or more judges could change their minds and the result might change. I encountered that process only in the Second Circuit and not the other Circuits in cases I argued.

In one significant case, Kahn Est. v. Commissioner, 499 F.2d 1186 (2d Cir. 1974), here. I don’t remember when the case was briefed, but the oral argument was on May 20, 1974, by which date I was a more or less seasoned appellate lawyer (almost 5 years in the Appellate Section (although I think I had actually transferred to the Refund Trial Section by oral argument but handled the oral argument anyway)).  My opposing counsel was John S. Nolan of Miller & Chevalier, probably within 5 or 10 of the most prominent tax attorneys and advocates in the country. Nolan represented the appellants who had lost in the Tax Court. In the briefing process, my reviewer and I knew who Nolan was because of his prominence, but neither of us place any particular importance to that.

I think we were assigned 30 minutes each for argument. By practice, almost always the Appellant’s counsel reserved some time for reply to any arguments of the Appellee’s counsel.  Nolan used up most of his time on opening argument but reserved some time (perhaps 5 minutes) to reply. I got up to make my argument, but based on the panel’s interaction with Nolan in his opening argument, felt that the panel already knew the arguments I could make.  I thus felt that I should only address a couple of particular points that the panel had engaged with Nolan in opening argument that might still be of concern. My argument took perhaps 5 minutes with some interaction with the panel, thus surrendering the 25 minutes I could have used. (I usually prepared to use 15 minutes in a 30 minute argument, on the notion that if I were not engaging back and forth with the panel by 15 minutes, more fulsome argument was not appropriate, but often, as in this case, I shortened oral argument). Nolan then made his reply, but there really was not much to reply to. The panel then turned around at the bench and conferred. I felt sure that the panel would announce that the Government would win, opinion to follow. Instead, they announced that they would take the case under advisement. The decision came out for the Government in less than a month after oral argument.

I probably did not misread the panel and wondered why the panel did not announce the decision immediately after oral argument. I speculate the reason the panel did not was that (i) they knew who Nolan was and his prominence, (ii) Nolan had introduced the panel at the opening of his argument to representatives of the client and junior attorneys in his firm who traveled from Washington to NYC for the oral argument, and (iii) the court probably just did not want to swat down Nolan’s arguments in front of interested spectators that fashion. One of the junior attorneys from Nolan’s firm came up to me after the oral argument and expressed his surprise that I had not offered a more fulsome (meaning lengthy) argument, suggesting that my short argument was somehow rude to Nolan by suggesting his oral argument was not worthy of more response. I told him that I felt I had the panel and that making further argument would be a waste of everyone’s time, so it was not disrespectful to Nolan since I responded as appropriate to his oral argument. That attorney and I became reasonably good friends, thereafter, working on various ABA Tax Section projects.