                     United States Court of Appeals
                           FOR THE EIGHTH CIRCUIT
                                   ___________

                                 Nos. 99-1047/1066
                                   ___________

Terry L. Jones and Patricia K. Jones; *
Jones Publishing, Inc.; Jones Oil     *
Company, Inc.; Jones Petroleum        *
Company, A Partnership; and J. O.     *
Holding, Formerly Known as Jones Oil  *
Company, Inc.,                        *
                                      * Appeals from the United States
         Appellees/Cross-Appellants,  * District Court for the District of
                                      * Nebraska.
      v.                              *
                                      *
United States of America,             *
                                      *
         Appellant/Cross-Appellee.    *
                                 ___________

                             Submitted: October 21, 1999

                                  Filed: March 24, 2000
                                   ___________

Before MORRIS SHEPPARD ARNOLD, HEANEY, and FAGG, Circuit Judges.
                         ___________

MORRIS SHEPPARD ARNOLD, Circuit Judge.

       Terry Jones and Patricia Jones sued the United States for wrongfully disclosing
tax information in violation of 26 U.S.C. § 6103. After the district court granted
summary judgment in the government's favor on the ground that Agent Angelo Stennis
acted in good faith in telling a confidential informant about an impending search of
Jones Oil Company, see Jones v. United States, 898 F. Supp. 1360 (D. Neb. 1995), we
reversed and remanded for further proceedings. See Jones v. United States, 97 F.3d
1121 (8th Cir. 1996). We held that it was the government's burden to prove that its
agent acted in good faith, and that "[a]n agent's failure to consult the statutory language
as interpreted and reflected in IRS regulations and manuals prior to an improper
disclosure of return information is strong evidence that the interpretation of the statute
was not in good faith," id. at 1125.

       On remand, the district court held that the government had failed to prove that
Agent Stennis acted on a good-faith but erroneous interpretation of § 6103. See Jones
v. United States, 954 F. Supp. 191 (D. Neb. 1997). In reaching this result, the district
court made four observations. First, the court noted that although many elements of the
relevant exception to § 6103 are not clearly established, investigative disclosures, see
§ 6103(k)(6), are clearly the exception, not the rule. See Jones, 954 F. Supp. at 193.
Second, it opined that if Agent Stennis had looked at the language of § 6103(k)(6), he
would have learned that disclosure was permitted only when "necessary," and that there
is no explicit authorization for disclosures to informants. See Jones, 954 F. Supp. at
193. Third, it found that Agent Stennis did not seek authorization from Agent Stephen
Tinsley (the agent in charge of the investigation), which upset and surprised Agent
Tinsley, and that Agent Tinsley's reaction to Agent Stennis's failure to seek
authorization suggested that Agent Stennis was not acting objectively reasonably. See
id. at 194. Finally, it observed that none of the government's witnesses, including
Agent Stennis, was able to articulate why disclosing the search warrant information to
the informant was "necessary," see § 6103(k)(6). See Jones, 954 F. Supp. at 194.

      Because the district court held that Agent Stennis did not act in good faith, it then
proceeded to determine what damages the Joneses had suffered. The court found that
the confidential informant had alerted a television station of the impending search of
Jones Oil Company, that the attendant publicity had caused the demise of the company,
and that the Joneses had suffered consequential damages in the amount of $5,431,199.

                                           -2-
See Jones v. United States, 9 F. Supp. 2d 1119, 1154 (D. Neb. 1998). The court
refused, however, to award punitive damages, see id. at 1153, or attorneys' fees to the
Joneses, see Jones v. United States, 9 F. Supp. 2d 1154, 1161 (D. Neb. 1998).

       All parties appeal, and we affirm in part and reverse in part.

                                          I.
       This case has a long and complicated history. It was filed over seven years ago
and has generated multiple published opinions, perhaps because of the virtually
intractable murkiness of the applicable substantive rules and the prolixity of relevant
regulations.

        As we have already noted, in an earlier incarnation of this case we reversed the
district court's determination that it was part of the plaintiff's case to prove that the
defendant did not act in good faith. The government still maintains that we were wrong
in that determination, and were it not for the fact that it is the law of the case, we might
be inclined to revisit the issue. But in the end the issue is almost certainly a red herring,
because the burden of proof in a civil case serves to determine who prevails only if the
evidence is in equipoise. The rule simply decides, in other words, who wins if there
is a tie. We do not think that anyone seriously contends here that there is a evidentiary
tie, so we pass over the point temporarily, to return to it at a later juncture and in
another context.

       More troublesome is what we said in our previous opinion about what evidence
is relevant on the question of good faith. As we already indicated, we directed the
district court's attention to Agent Stennis's failure, if any, to consult the relevant
statutory provision in connection with a determination of his good faith. On remand,
the district court did what we instructed it to do and inquired into the efforts that
Agent Stennis made to determine the legality of his disclosure.


                                            -3-
        The government again maintains that we erred in our first effort to discern the
principles of liability appropriate to this case. Perhaps the government is correct:
While the efforts of governmental agents to discover applicable legal principles may
well be germane to the question of punitive damages, a good case can be made that
those principles are not relevant on the matter of liability. With respect to liability, the
proper focus is arguably on what an objectively reasonable agent could have thought
about the legality of his acts had he in fact known clearly established law, whether or
not he acted to discover what it was. That is what we held in Rorex v. Traynor, 771
F.2d 383, 387 (8th Cir. 1985). What government agents knew about the circumstances
in which they acted is, of course, pertinent to the matter of liability. As far as the law
is concerned, however, we have held that what matters is what " 'a reasonable person
would have known' " about " 'clearly established statutory or constitutional rights.' "
Id. at 387, quoting Harlow v. Fitzgerald, 457 U.S. 800, 818 (1982).

       We decline, however, because of the law of the case doctrine, to revisit the
matter. We note, moreover, that even if Agent Stennis's efforts to discover what the
law allowed him to do are put out of the picture, the government failed to carry its
burden of showing that Agent Stennis acted in good faith. The applicable statutory
provision, see 26 U.S.C. § 6103(k)(6), allows for the disclosure of information "only
in such situations and under such conditions as [the Secretary of the Treasury or the
Secretary's delegate] may prescribe by regulation," and the short of it is that the
Secretary has not prescribed any regulation that allows for the disclosure of information
in the circumstances of this case. It was thus clearly established at the time of these
events that it was unlawful for Agent Stennis to disclose the information that he did,
and the district court was therefore correct in finding against the government on the
liability question.

                                        II.
      The government also argues that the district court erroneously included
prejudgment interest in its damages award. We agree.

                                            -4-
       The district court based its damages award on the testimony of the Joneses'
expert, John Chapin, who analyzed the damages that resulted from the demise of Jones
Oil Company, the forced sale of certain real property, and the forced sale of certain
personal property. In calculating the value of Jones Oil Company at the time of its
demise, that is, in 1989, Mr. Chapin capitalized the company's income stream and
arrived at a figure of $2,197,288. Mr. Chapin then opined that as of the date of trial,
the damages amounted to $4,516,085, because that was the amount that the Joneses
would have had as of the date of trial if their 1989 loss had been invested at the "Baa"
bond rate. Mr. Chapin performed similar calculations with respect to the real estate
and personal property that was sold. He concluded that the real property was sold for
a loss of $335,485, which amount, by the time of trial, would have been $565,356 if
invested at the "Baa" bond rate. He also opined that the personal property was sold at
a loss of $13,345, which amount would have been worth $24,760 at the time of trial if
properly invested.

        All parties concur that it is improper to award prejudgment interest in the
circumstances of this case, see Library of Congress v. Shaw, 478 U.S. 310, 314 (1986),
but the Joneses argue that the award contains no prejudgment interest. We agree,
however, with the government's contention that the increment that Mr. Chapin added
to the losses that occurred when the company failed and its assets were sold was indeed
interest. Perhaps if Mr. Chapin had stated as his opinion that the value of the business
and the property would have increased a certain amount in the relevant interim, that
increment would have been recoverable. But see Restatement (Second) of Torts 2d,
§ 927(1)(a), at 534 (1979), where it is said that the amount recoverable for the wrongful
destruction of a thing is its value at the time of its destruction. In any event, that is not
our case. In our case, the district court awarded amounts that compensated the Joneses
for the loss of investment capital between the time of the loss and the date of trial. This
is nothing more than damages for the delay in receiving money and, we think, cannot
be properly characterized as anything but interest. The character or nature of interest


                                            -5-
does not change simply because it is called by another name. See Shaw, 478 U.S.
at 321-22. The judgment must therefore be reduced by $2,560,081.

       We detect another, related error in the damages calculation. As the government
points out, the district court, following Mr. Chapin's example, awarded the Joneses an
amount that was in truth prejudgment interest from the date of Mr. Chapin's evaluation
to the date of judgment. Under 28 U.S.C. § 1961(a), interest is allowable on any
money judgment "from the date of the entry of the judgment," and under 28 U.S.C.
§ 1961(b), the Joneses are entitled to interest on their judgment, properly reduced, from
the time of entry "to the date of payment." On remand, the Joneses may seek interest
in accordance with this last provision.

                                         III.
      The Joneses cross-appeal the district court's orders denying them punitive
damages and attorneys' fees, but we agree with the district court's conclusions on these
matters.

       Punitive damages are recoverable only "in the case of a willful ... disclosure or
... [a] disclosure which is the result of gross negligence," see 26 U.S.C.
§ 7431(c)(1)(B)(ii). The district court supported its refusal to award punitive damages
with a number of factual findings, all of which we must uphold if they are not clearly
erroneous, which none of them is. The court found, for instance, that Agent Stennis
disclosed the impending search of the Jones Oil Company premises in an effort to
protect the informant and not to harm the Joneses, and that Agent Stennis had reason
to trust the informant. This last fact, we think, is highly significant. These findings,
and others, are entitled to play a substantial part in the calculation of fault, and we see
no error, legal or otherwise, in the district court's conclusion that Agent Stennis did not
act willfully or in a grossly negligent fashion.




                                           -6-
       Nor is there any error in the denial of attorneys' fees to the Joneses. We pass
over the question of whether 26 U.S.C. § 7430(a) even applies to the present
circumstances, although it is a nice question whether this case qualifies as a "court
proceeding ... in connection with the determination, collection, or refund of any tax."
While, as the district court observed, the disclosures at the heart of the case might
satisfy the "in connection with" language of the statute, that is not relevant. The
appropriate question is whether the case itself, not some disclosure, is one "in
connection with" the statutory list. It is not obvious that the government is wrong in
taking the position that the statute simply does not apply.

      Even if the statute does apply, however, fees are not available if the
government's position on the merits of the case was "substantially justified," see
26 U.S.C. § 7430(c)(4)(B)(i), and, as the district court pointed out, the government's
position had ample justification in this case. At the first trial, Agent Stennis asserted
that he never told the informant about the search warrant at all; surely the government
was entitled to press this absolute defense without incurring liability for fees. The
government also took the position, which we have already said at least makes good
sense, and may even be right, that the Joneses had the burden to show that Agent
Stennis did not act in good faith. In addition, at the second trial, the government did
not act in bad faith by arguing Agent Stennis's subjective good faith, because our court
indicated that that issue was central to the liability question. Finally, the district court
quite rightly concluded that the government's aggressive resistance to the Joneses'
various and excessive damages claims, including the claim for punitive damages, was
entirely warranted.

      For the reasons indicated, we remand to the district court for a recalculation of
the damages award. We affirm the judgment of the district court in all other particulars.



              HEANEY, Circuit Judge, concurring in part and dissenting in part.

                                            -7-
       I concur in Part II of the majority’s opinion. It is clear to me that Agent Stennis
did not act in good faith when he disclosed the search warrant information to his
informant, and that the district court’s damages award included unlawful prejudgment
interest. I must, however, part company with my colleagues on their analysis of
punitive damages and attorneys' fees.

                                 I. Punitive Damages

       Punitive damages may be awarded based on a wrongful disclosure of tax return
information if the disclosure is willful or grossly negligent. See I.R.C. § 7431(c)(1)(b)
(1999). I am convinced that the district court erred in concluding that Agent Stennis’s
disclosure was not at least grossly negligent.

       First, the search warrant, the subject of Agent Stennis’s disclosure, was signed
on January 31, 1990 at 11:00 a.m. See Jones v. United States, 898 F. Supp. 1360,
1367 (D. Neb. 1995). The warrant was under seal and gag orders were in place,
preventing all agents from revealing any information about the warrant prior to its
scheduled execution the following morning. However, in disregard of the gag order,
Agent Stennis disclosed protected information to his informant, Ricardo Lucchino,
shortly after the warrant was signed. See id.

        Second, Agent Stennis knew that the disclosure likely was unauthorized. He
testified that “[y]ou’re not allowed to tell anyone anything, anything more than you
need to disclose to get the information you wish to receive.” (Tr. at 246-47.) Stennis
also testified that he knew I.R.C. § 6103 provided that tax return information cannot
be disclosed unless a provision permits such disclosure and that he knew of no
provision relating to confidential informants.

     Third, Agent Stennis never consulted any authority for guidance on whether he
was permitted to tell Lucchino of the warrant, choosing instead to rely on his

                                           -8-
experience. Stennis testified that he did not review the applicable statute, read the IRS
regulations, consult the IRS manual, or discuss with his supervisor, Agent Stephen
Tinsley, his intent to disclose the information to the informants. By failing to consult
any authority, Agent Stennis completely disregarded the likelihood his disclosure was
prohibited.

       Fourth, Agent Stennis knew that Lucchino had a financial incentive to harm
Jones Oil. Lucchino is a former Jones Oil employee, who left the company on
unfriendly terms after being accused of misappropriating proprietary information to a
competitor. See Jones v. United States, 9 F. Supp.2d 1119, 1139 (D. Neb. 1998). At
the time of the investigation, Lucchino worked for a Jones Oil competitor. See id.
Stennis testified that “you trust [any] informant only up to a certain point, and I would
have a problem with telling an informant we are going to do this at this time, knowing
what his or her reaction would be.” (Tr. at 246.) Agent Stennis knew that providing
search warrant information to any informant is generally unwise, and he knew of
Lucchino’s hostile relationship with Jones Oil. Although Stennis may not have known
that Lucchino would contact the news media, he knew or should have known that
disclosing such information to Lucchino could be problematic.

       Fifth, Agent Stennis testified that he disclosed the search warrant information to
protect the informants and ensure that they could provide information on future
investigations. However, Stennis knew that the informants would not be at Jones Oil
when the warrant was executed. Furthermore, he never discussed with Agent Tinsley
his concern for the informants’ safety, something that “surprise[d]” and “upset”
Tinsley. (Tr. at 218.) Even if safety was a legitimate concern, other alternatives to
disclosure, such as placing the informants in a safe house, were available to protect the
informants’ safety.

      By failing in all respects to ensure that he was authorized to disclose the search
warrant information, Agent Stennis demonstrated a reckless disregard for the Joneses’

                                          -9-
rights and, therefore, was grossly negligent. Accordingly, the Joneses are entitled to
punitive damages.

                                   II. Attorneys' Fees

       I also part with the majority on its analysis of attorneys' fees. Under I.R.C. §
7430(a), “reasonable litigation costs,” including attorneys' fees, may be awarded if
incurred in an administrative or court proceeding brought against the United States “in
connection with the determination, collection, or refund of any tax, interest, or penalty.”
Although the majority does not address the applicability of this section, a careful review
of the facts reveals that § 7430 indeed applies. Agent Stennis’s disclosure was made
in the course of the government’s effort to ascertain and collect unpaid taxes from
Jones Oil and the Joneses. The search warrant was executed during the government’s
criminal investigation into Jones Oil’s corporate income tax liability, particularly motor
fuel excise taxes, and into Terry and Patricia Jones’s tax liability. The investigation
focused on determining whether Jones Oil was evading corporate taxes and on whether
the Joneses were evading income taxes. Because the disclosure occurred during a tax
evasion investigation, the Joneses’ action against the government was brought in
connection with determining and collecting taxes from Jones Oil and the Joneses.

       Under § 7430, attorneys' fees can be awarded only if the government’s position
was not substantially justified. See I.R.C. § 7430(c)(4)(B)(i). It certainly was not in
this case.

        The government argued at trial that even if Agent Stennis disclosed the
information in violation of § 6103, he did so in good faith, intending to protect his
informants’ safety. However, the facts of this case, as highlighted by the majority and
in the punitive damages section of this dissent, demonstrate the egregiousness of Agent
Stennis’s actions and clearly show that he did not act in good faith. In addition, §
6103(k)(6) only allows disclosures in circumstances permitted by regulation, and the

                                           -10-
applicable regulations do not authorize disclosure to protect the safety of a confidential
informant, see 26 C.F.R. § 301.6103(k)(6)-1.

       In addition, during the damages trial, the government offered little evidence to
contest the damages alleged by the Joneses. It offered no expert testimony on the
issue, nor did it question the Joneses’ expert on his method for calculating damages.
In fact, the government’s expert, who did not testify at trial, agreed with the Joneses’
method for valuing the loss of Jones Oil. Furthermore, the government did not contest
the damages calculation on prejudgment interest grounds until after trial, first raising
the issue in a post-trial reply brief.

        Agent Stennis clearly did not act in good faith. Moreover, the government
offered little evidence during the damages trial and did not contest the Joneses’
damages analysis. For these reasons, the government was not substantially justified in
its position, and attorneys' fees should have been awarded.

      Thus, I concur in part and respectfully dissent in part.




      A true copy.

             Attest:

                 CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.




                                          -11-
