Sunday, August 27, 2006

The High Cost of Words

In Szopa v. United States, the Seventh Circuit imposed a sanction of $8000 on a frivolous appeal by a taxpayer whom the court styled as a "recidivist litigator". There are lots of weird theories out there that are raised by tax protestors to justify their nonpayment of taxes. According to the court, this taxpayer believed that the income tax only applied to "employment", and that "non-corporate citizens of the United States need not pay 'income taxes'." Of course, that is not true, but this persistent taxpayer would not relent. As a result, sanctions were imposed to allow the government to recover its costs of defending the litigation.

The computation of those costs was quite interesting. The Justice Department estimates the cost of its attorney time at $139/hour. This takes into account the salary, benefits, and other overhead costs associated with its attorneys in the Appellate Division. Paralegal costs were estimated at $83/hour. These rates are far below those charged in many private firms, though I think most people will agree that the hourly costs are substantial.

The costs really mount up when the time to handle a single frivolous appeal are computed. According to the Justice Department, a 15 page brief drafted to handle the appeal of this taxpayer cost $8031, requiring 53 attorney hours and 8 hours of paralegal time. This seems like a lot, and the court suggests as much: "That's about four hours a page, or 53 words per hour at a cost of $2.80 per word. (The brief contained about 2,800 words.)"

Although the court challenged whether this much time was appropriate for a frivolous claim, which had been resolved before, the government noted: " "We have ... long seen it as our responsibility, even in the most frivolous cases, to spend the time necessary to parse through [sic] the often convoluted and unintelligible arguments of tax protesters so that their cases might be presented to the court in as coherent a fashion as possible. Lawyers in the private sector, who are not held to such a high standard by the courts, are under no similar compunction." The court found this statement to be well taken, and here I agree to a point. The government must take into account carefully the arguments that taxpayers make. Sometimes, the crazy arguments they make are bought by courts (as in the Murphy case from the DC circuit, which I harangued about a few days ago). When that happens, it can take a lot more time to smoothe out the system again. Spending a little more time to get it right is worth it in the long run.

In this case, the court found that $4K should be enough in the usual case, but they imposed $8K on this taxpayer because the taxpayer was deemed a "recidivist litigator". I guess that raises the stakes for others similarly situated, and thus may signal to them a need to get some help instead of clogging up the courts.

This case reminds us that justice is expensive. Clients pay a lot of money for legal services, and if you start computing the costs of various legal efforts as this court did, the results are a little shocking. Nevertheless, if you are a client, I would not necessarily opt for a "fast-talking" lawyer in the hope of saving a little money. And though brevity is the soul of wit, brevity has its costs as well. Remember Samuel Clemens' quip to his editor: "If I would have had more time, I could have written a shorter book." So true (and especially so when it comes to these long blogs).


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