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United States v. Hart

United States District Court, Ninth Circuit

June 6, 2013

UNITED STATES OF AMERICA, Plaintiff,
v.
PHILIP L. HART, et al Defendant.

MEMORANDUM DECISION AND ORDER

EDWARD J. LODGE, District Judge.

Before the Court in the above-entitled matter is the Plaintiff's Motion for Partial Summary Judgment and related Motion to Strike. Having fully reviewed the record, the Court finds that the facts and legal arguments are adequately presented in the briefs and record. Accordingly, in the interest of avoiding further delay, and because the Court conclusively finds that the decisional process would not be significantly aided by oral argument, the Motions shall be decided on the record before this Court without oral argument.

FACTUAL AND PROCEDURAL BACKGROUND

Plaintiff, United States of America, filed a Complaint in this matter seeking to reduce tax assessments to judgment and to foreclose federal tax liens on a parcel of real property located in Kootenai County, Idaho. (Dkt. 1.) The Complaint names several Defendants with Philip L. Hart as the primary subject of the Complaint.[1] The allegations in the Complaint center around the United States' claims that Mr. Hart has failed to pay his federal tax liabilities for the years 1996, 2001, and 2005-2008. (Dkt. 1.)

On June 1, 2012 this case was stayed as a result of Mr. Hart having filed for bankruptcy. (Dkt. 59.) The stay was lifted on September 13, 2012 after the Court was notified that the bankruptcy petition had been dismissed. (Dkt. 62.) Shortly thereafter, on October 25, 2012, the Court received notice that a second bankruptcy petition had been filed by Mr. Hart which again required that this case be stayed. (Dkt. 63, 64.) On December 13, 2012, the second bankruptcy stay was also lifted because Bankruptcy Court had entered an order denying Mr. Hart's Motion to Extend the Automatic Bankruptcy Stay. (Dkt. 67.) The Court again reset the discovery and motions deadlines; providing the parties additional time to complete discovery and file their motions.[2]

The United States then, on January 18, 2013, filed the instant Motion for Partial Summary Judgment. (Dkt. 70.) On the day his response brief was due, Mr. Hart asked for additional time to file his response to the Motion which this Court granted in part, giving Mr. Hart an additional twenty-one days, effectively twice the normal time for such a filing, in which to file his complete response. (Dkt. 84.) Again, on the day his response was due, Mr. Hart filed a Second Motion for Extension of Time to file his response which the Court denied. (Dkt. 85, 94.) The United States has also filed a related Motion to Strike. (Dkt. 95.) Both Motions are now ripe for the Court's consideration and the Court finds as follows.

STANDARD OF REVIEW

Motions for summary judgment are governed by Rule 56 of the Federal Rules of Civil Procedure. Rule 56 provides, in pertinent part, that "[t]he court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law. The court should state on the record the reasons for granting or denying the motion." Fed.R.Civ.P. 56(a). "A party asserting that a fact cannot be or is genuinely disputed must support the assertion by: (A) citing to particular parts of materials in the record, including depositions, documents, electronically stored information, affidavits or declarations, stipulations (including those made for purposes of the motion only), admissions, interrogatory answers, or other materials; or (B) showing that the materials cited do not establish the absence or presence of a genuine dispute, or that an adverse party cannot produce admissible evidence to support the fact." Fed.R.Civ.P. 56(c)(1).

The party moving for summary judgment has the initial burden of showing that there are no genuine issues of material fact and that it is entitled to judgment as a matter of law. See Anderson v. Liberty Lobby, 477 U.S. 242, 247-48 (1986). Once the moving party has met this initial burden, the nonmoving party has the subsequent burden of presenting evidence to show that a genuine issue of fact remains. The party opposing the motion for summary judgment may not rest upon the mere allegations or denials of his pleading, but must set forth specific facts showing that there is a genuine issue for trial. Id. at 248. If the non-moving party "fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial" then summary judgment is proper as "there can be no genuine issue of material fact, ' since a complete failure of proof concerning an essential element of the nonmoving party's case necessarily renders all other facts immaterial." Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986)[3]

Moreover, under Rule 56, it is clear that in order to preclude entry of summary judgment an issue must be both "material" and "genuine." An issue is "material" if it affects the outcome of the litigation. An issue, before it may be considered "genuine, " must be established by "sufficient evidence supporting the claimed factual dispute... to require a jury or judge to resolve the parties' differing versions of the truth at trial." Hahn v. Sargent, 523 F.3d 461, 464 (1st Cir. 1975) (quoting First Nat'l Bank v. Cities Serv. Co. Inc., 391 U.S. 253, 289 (1968)). The Ninth Circuit cases are in accord. See, e.g., British Motor Car Distrib. V. San Francisco Automotive Indus. Welfare Fund, 883 F.2d 371 (9th Cir. 1989).

According to the Ninth Circuit, in order to withstand a motion for summary judgment, a party

(1) must make a showing sufficient to establish a genuine issue of fact with respect to any element for which it bears the burden of proof; (2) must show that there is an issue that may reasonably be resolved in favor of either party; and (3) must come forward with more persuasive evidence than would otherwise be necessary when the factual context makes the non-moving party's claim implausible.

Id. at 374 (citation omitted). Of course, when applying the above standard, the court must view all of the evidence in the light most favorable to the non-moving party. Anderson, 477 U.S. at 255; Hughes v. United States, 953 F.2d 531, 541 (9th Cir. 1992).

DISCUSSION

1. Motion to Strike

The United States challenges the Declaration of Cynthia Reyburn and the newly prepared tax returns she has compiled. (Dkt. 95.) This witness and these materials, the United States argues, were not disclosed until after the close of discovery and after it had filed the instant Motion for Partial Summary Judgment in violation of Rule 26 and, therefore, the materials should be precluded under Rule 37. As such, the United States asks that the Court strike the materials or, alternatively, reopen discovery for the limited purpose of allowing the United States to obtain documents from Ms. Reyburn, depose her, and also redepose Mr. Hart. (Dkt. 95 at 2.)

In response, Mr. Hart argues the materials are necessary to dispute correctness of the United States' assessments for the years and amounts listed in the Complaint. (Dkt. 99 at 6.) Mr. Hart represents that he was prompted to retain Ms. Reyburn by the United States' "off the record" comments suggesting that he may need to file amended returns. He maintains that his theory of the case disputing the correctness/arbitrariness of the figures asserted by the United States remains the same and that Ms. Reyburn's testimony and materials simply confirms/supports this theory. Further, Mr. Hart agrees with the United States' suggested alternative to reopen discovery on the issues. (Dkt. 99 at 7.)

In early January of 2013, Mr. Hart retained Ms. Reyburn to "review and rework" his tax returns for the years 1997-2008. (Dkt. 87 at ¶ 6-7.) Thus far, it appears Ms. Reyburn has completed her work for the 1997-2001 tax returns which are attached as Exhibit D and E to Mr. Hart's response to the Motion for Summary Judgment. (Dkt. 87 at ¶ 9, Ex. D, E) (Dkt. 88, 91, 92.) Mr. Hart has also submitted two Declarations by Ms. Reyburn. (Dkt. 87, Ex. C) (Dkt. 90, 91.) Following these submissions, the United States filed its Motion to Strike and Reply brief. (Dkt. 95, 96.) In those documents, the United States maintains that the new returns still do not create a genuine issue of material fact as to the categories of deductions the Motion seeks summary judgment upon. (Dkt. 96 at 2.)

The Court has reviewed the record and finds the United States is correct that these submissions by Mr. Hart are untimely as they are outside of the period for producing discovery. As such, the Court will grant the Motion to Strike. The Court has allowed Mr. Hart numerous continuances in this matter that has been pending since October of 2001 and the tax liabilities at issue here have been unresolved since 1996. Moreover, to allow Mr. Hart to rely upon these untimely submissions in responding to the Motion for Summary Judgment here is contrary to the procedural rules governing discovery and motion practice and is unduly prejudicial to the United States. See Fed.R.Civ.P. 26, 37. For these reasons, the Court will grant the Motion to Strike the amended tax returns.

2. Motion for Partial Summary Judgment

The United States' Motion asks that the Court rule upon certain of Mr. Hart's deductions and enter an order against all Defendants foreclosing the federal tax liens on Mr. Hart's real property. (Dkt. 72.) The Motion separates the tax years into three categories of claims. The Court has considered the same and finds as follows.

A. Tax Year of 1996

Because the United States Tax Court has determined the amount of Mr. Hart's tax liabilities for 1996, the United States argues judgment as a matter of law is appropriate on that year's tax obligation. (Dkt. 72 at 4.) In response, Mr. Hart agrees that the United States Tax Court's decision is entitled to res judicata and he does not challenge the liability of the decision. (Dkt. 86 at 5.) He does, however, challenge the calculations of Revenue Officer William A. Waight on the 1996 Form 4340 and the Tax Court Decision.

Mr. Hart did not file a federal income tax return for 1996. The Internal Revenue Service ("IRS") determined that Mr. Hart owed $12, 497 in taxes, $3, 124 in failure-to-file penalty, and $665 in penalties for failing to deposit taxes. (Dkt. 71 at ¶ 1.) The United States Tax Court reviewed and upheld the IRS's determination and, additionally, imposed a $10, 000 penalty on Mr. Hart for making frivolous arguments. (Dkt. 73-4, Ex. C, D.) The Ninth Circuit affirmed the Tax Court's decision and imposed a further penalty of $2, 000. Hart v. Commissioner, 14 Fed.Appx. 990 (9th Cir. 2001). The United States argues these decisions are a final decision on the merits of the prior action and, therefore, further relitigation of the same issue here is barred by res judicata. (Dkt. 72 at 4.) The Court agrees.

The IRS's determination as to Mr. Hart's 1996 tax liabilities and penalties has been reviewed and upheld by both the United States Tax Court and the Ninth Circuit. As such, re-adjudication of those deficiencies is precluded by res judicata. See United States v. Collins, No. 05-35850, 2007 WL 4115937 (9th Cir. Oct. 22, 2007) (citing Baker v. Internal Revenue Service, 74 F.3d 906, 909-10 (9th Cir. 1996) (per curiam) ("a final judgment on the merits of an action precludes the parties from relitigating issues that were or could have been raised in that action")). For the same reasons, Mr. Hart's challenge to the Revenue Officer's calculations are barred as a matter of law. Even if his challenge were not precluded, Mr. Hart's argument is in error as he was given credit for the $2, 428.62 payments made for 1995 as is reflected on the Form 4340 for 1996. (Dkt. 96, Ex. A at ¶ 6.) The Motion is granted as to the 1996 tax year liabilities and penalties.

B. Tax Years 2001, 2005-2008

For the years 2001 and 2005-2008, the United States seeks to collect the taxes that Mr. Hart reported himself to owe on his returns for those years but did not pay. (Dkt. 72 at 4.) The United States maintains that because Mr. Hart prepared the returns for each of those years and signed the same under the penalty of perjury, the Court should treat the amount of tax he reported as a conclusive admission. In response, Mr. Hart states he has not had adequate time to have his accountant review his tax returns and is unable to address these arguments. (Dkt. 86 at 6.)

As to Mr. Hart's contention that he has not had adequate time to prepare in this case, the Court has addressed this argument in its prior Orders on the numerous continuance requests Mr. Hart has filed. (Dkt. 52, 84, 94.) This matter has been pending since October 27, 2011 and the tax liabilities at issue have been unresolved since 1996. Mr. Hart's own briefing throughout this case evidences that he is very much aware of the fact that the issues surrounding his tax liabilities as raised in this case would be coming to a head. See e.g. (Dkt. 86 at 9) ("Hart acknowledges that a foreclosure is imminent."). It is understandable that circumstances may arise that necessitate continuances; such as Mr. Hart having to retain a new accountant. The Court, however, has afforded Mr. Hart reasonable accommodations due to his having newly retained his accountant. There is simply no basis for Mr. Hart to argue he had insufficient time to have prepared his case.

Mr. Hart also argues that he was "ill equipped and his tax form skills were inadequate when it came to preparing his own returns and calculating tax liability." (Dkt. 86 at 6-7.) Based on the review his new accountant has performed thus far, Mr. Hart now argues the figures relied upon by the United States were "arbitrary and incomplete." (Dkt. 86 at 7.) Essentially, Mr. Hart's position as to these returns is that his new accountant has reviewed his prior tax returns and prepared new revised returns for those years that the United States should accept at this time. The United States argues the newly completed returns should be given no weight and stricken as they were untimely and produced in this case after discovery had closed. (Dkt. 96 at 11.)

In support of its position, the United States points to Federal Rule of Evidence 801(d)(2) which provides for the admissibility of a statement that is offered against an opposing party in five circumstances. See Fed.R.Evid. 801(d)(2). This rule establishes that the tax returns Mr. Hart prepared himself are likely admissible evidence if offered by the United States against Mr. Hart. Mr. Hart, however, now argues that the amended returns prepared by his newly retained accountant for these years are correct and accurate. The admissibility of the newly prepared returns if offered by Mr. Hart is questionable.[4] Under Rule 801(c), the returns appear to be hearsay statements for which there is no exception.[5] Further, as stated above, the Court has granted the Motion to Strike the amended returns.

As to the returns Mr. Hart filed for 2001 and 2005-2008, the Court finds at this stage of the proceedings that a genuine issue of material fact exists as to these returns which precludes summary judgment. The United States' Motion as to these tax years is based solely on the returns Mr. Hart filed claiming those returns are admissions of the tax liabilities stated therein. (Dkt. 72 at 4.) Although the returns are likely admissible evidence against Mr. Hart, the authority concerning whether signed tax returns in and of themselves are proof of the facts and figures contained therein suggests otherwise. See Naughton, 2002 WL 567, at *9 (A tax return itself does not establish the facts contained therein but merely constitutes a statement of the taxpayer's claim.); but see United States v. Stephens, 185 F.Supp.2d 1116, 1126 (E.D. Cal. 2001) ("An assessment of unpaid federal tax, when supported by some positive evidence or properly certified, is presumptively correct evidence of the taxpayer's liability and satisfies the government's burden ...


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