Appeal from the United States Tax Court.
Cudahy, Coffey, and Flaum, Circuit Judges.
The appellants appeal the order of the Tax Court dismissing their petition for a redetermination of tax liability. The Tax Court dismissed the petition for failure to comply with the court's order compelling discovery, pursuant to Tax Court Rule 104(c), 26 U.S.C. foll. § 7453 (hereinafter T.C.R. 104(c)). We hold that the limitations imposed on the discretion of the district courts to dismiss a case as a discovery sanction pursuant to Rule 37, Federal Rules of Civil Procedure, should also limit the discretion of the Tax Court to dismiss pursuant to Rule 104. Because the Tax Court in this case made the findings which are required of a district court prior to a Rule 37 dismissal, we affirm the order of the Tax Court.
The appellants filed a petition for a redetermination of tax liability with the Tax Court on April 27, 1979. The petition attacked adjustments made by the IRS in the appellants' 1975 and 1976 returns. On September 18, 1980, the appellants filed a second petition attacking a deficiency assessed in their 1977 and 1978 tax returns. Respondent-appellee answered both petitions and moved to consolidate the cases. On March 4, 1981, the appellees moved for an order compelling answers to interrogatories and an order compelling production of documents. At the hearing on the motion, the Tax Court noted that appellants' attorney engaged in a pattern of failure to respond to discovery requests. The court found that the information requested was relevant and granted the motion to compel. The appellants were ordered to answer the interrogatories and produce the requested documents by June 8, 1981. The appellants were not warned that continued failure to respond would result in dismissal.
On July 17, 1981, the appellees moved the court to impose sanctions for continued failure to respond to the discovery requests. Dismissal was explicitly requested. At a hearing on August 5, 1981, neither the appellants nor their counsel appeared. The Tax Court took the motion to impose sanctions under advisement, while making the following observations:
R. 19 at 3. The Tax Court subsequently dismissed the petitions pursuant to T.C.R. 104(c) for failure to comply with the court's order to compel discovery. The appellants filed a timely notice of appeal.
The critical issue in this case is one not discussed by the parties: our standard of review. Research discloses no reported decision specifying the standard of review applied to appeals of dismissals entered pursuant to T.C.R. 104. The most closely related cases involve dismissals entered pursuant to T.C.R. 123.*fn1 At least one court of appeals has drawn an analogy between T.C.R. 123 and Rule 41 of the Federal Rules of Civil Procedure and its abuse of discretion standard. Watson v. Commissioner, 690 F.2d 429, 431 (5th Cir. 1982); Crandall v. Commissioner, 650 F.2d 659 (5th Cir. 1981); Freedson v. Commissioner, 565 F.2d 954, 955 (5th Cir. 1978); see Miller v. Commissioner, 300 F.2d 760 (2nd Cir. 1962) (Tax Court did not abuse its discretion in dismissing case after taxpayer failed to appear). Similarly, we may look to Rule 37, Fed. R. Civ. Pro., governing discovery sanctions, to determine the appropriate standard of review in this case.
Just as with appeals from dismissals made pursuant to Rule 41, the standard of review on appeal of a dismissal made pursuant to Rule 37 is whether the district court abused its discretion in imposing sanctions. National Hockey League v. Metropolitan Hockey Club, Inc., 427 U.S. 639, 642, 49 L. Ed. 2d 747, 96 S. Ct. 2778 (1976). Unlike Rule 41 dismissals, however, the discretion of the district court in Rule 37 dismissals is not very broad, especially in cases where the extreme penalty of dismissal has been imposed. The district court is required to find that the party against whom sanctions are imposed acted willfully and in bad faith. Hindmon v. National-Ben Franklin Life Insurance Co., 677 F.2d 617, 620 (7th Cir. 1982); Margoles v. Johns, 587 F.2d 885, 886-87 (7th Cir. 1978). The district court must also find a total failure to respond to the discovery requested. Laclede Gas Co. v. G.W. Warnecke Corp., 604 F.2d 561, 565 (8th Cir. 1979); Fox v. Studebaker-Worthington, Inc., 516 F.2d 989, 995 (8th Cir. 1975). The question before us today is whether these limitations should be imposed upon the discretion of the Tax Court. We conclude that they should.
While it is clear that proceedings in the Tax Court are not governed by the Federal Rules of Civil Procedure, Moore & Lucas, Moore's Federal Practice P81.03 (1982), it should be apparent that the Federal Rules of Civil Procedure and the Tax Court Rules are complementary and embody many of the same policy considerations. Like Rule 37, T.C.R. 104 governs actions to enforce discovery requests and to impose sanctions on the failure to comply with such requests.*fn2 The s which accompany the Rules*fn3 note that T.C.R. 104 was adapted in its entirety from F.R.C.P. 37. 60 T.C. at 1123-24. In addition, T.C.R. 1 expressly provides:
Where in any instance there is no applicable rule of procedure, the Court or the Judge before whom the matter is pending may prescribe the procedure, giving particular weight to the Federal Rules of Civil Procedure to the extent that they are suitably adaptable to govern the matter at hand.
T.C.R. 1, 26 U.S.C. foll. § 7453. These rules suggest that we may look to F.R.C.P. 37 to determine the scope of T.C.R. 104. This Court has also noted that the basic premise underlying the discovery procedures of the Tax Court Rules is similar to that of the Federal Rules. Ryan v. Commissioner, 568 F.2d 531, 538 ...