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United States v. Vaught

United States District Court, D. Idaho

September 30, 2019

UNITED STATES OF AMERICA, Petitioner,
v.
STEVE VAUGHT, President of Alpha Lending, LLC, d/b/a Marigold Credit, and Member-Manager of Alpha Holding Company, LLC, Respondent, S. CROW COLLATERAL CORPORATION and STANLEY D. CROW, Intervenors.

          MEMORANDUM DECISION AND ORDER

          David C. Nye, Chief U.S. District Court Judge.

         I. INTRODUCTION

         Pending before the Court is Respondent Steve Vaught’s Motion for Evidentiary Hearing (Dkt. 6) and Intervenors’ Motion to Amend and Supplement Opposition to Petition to Enforce IRS Summonses and Motion to Quash (Dkt. 26). Having reviewed the record and briefs, the Court finds that the facts and legal arguments are adequately presented. Accordingly, in the interest of avoiding further delay, and because the Court finds that the decisional process would not be significantly aided by oral argument, the Court will decide the Motions without oral argument. Dist. Idaho Loc. Civ. R. 7.1(d)(1)(B).

         Upon review, and for the reasons set forth below, the Court GRANTS the Motion to Amend and Supplement Opposition and DENIES the Motion for Evidentiary Hearing.

         II. BACKGROUND

         The IRS is investigating S. Crow Collateral Corporation (“SCCC”) and Stanley D. Crow. In the course of its investigation, it has issued multiple third-party summonses. SCCC and Crow have moved to quash third-party summons in two other cases: 1:17-mc-09828-EJL and 1:17-mc-09829-EJL (collectively “the Pioneer Title Summons Cases”).

         In the Pioneer Title Summons Cases, SCCC and Crow argued that the IRS’s investigation of SCCC and Crow was pretextual. They requested an evidentiary hearing to question IRS agents with regards to whether the investigation was legitimate. The district court found SCCC and Crow were not entitled to an evidentiary hearing because they had not plausibly raised an inference of bad faith; their argument that the IRS’s investigation was pretextual was not persuasive. 1:17-mc-09828-EJL Dkt. 26. Subsequently, SCCC and Crow appealed the district court’s decision on the grounds that they were entitled to an evidentiary hearing permitting them to cross-examine the IRS agents.

         While these events were occurring, Revenue Agent Kate Lopez, now retired, issued two administrative third-party summonses to Steve Vaught. Like the summonses issued in Pioneer Title Summons Cases, both summonses related to the IRS’s investigation of SCCC and Crow. On January 19, 2018, Lopez issued the first summons to Vaught as president of Alpha Lending, LLC, directing him to appear before the IRS on March 13, 2018, and to give testimony and produce for examination records and documents of Alpha Lending as described in the summons. On January 24, 2018, she issued the second summons to Vaught as member-manager of Alpha Holding Company, LLC, d/b/a Marigold Credit, directing him to appear before the IRS on March 13, 2018, and to give testimony and produce for examination records and documents of Marigold Credit as described in the summonses.[1]

         On March 9, 2018, Vaught’s counsel mailed a letter to Agent Lopez expressing opposition to the summonses, contending that the IRS sought “voluminous and irrelevant records.” Dkt. 4-10, at 2. He advised the IRS that “no records will be produced to you on or before March 13, 2018, in response to the summonses.” Id. After expressing that Vaught “anticipate[d] vigorously contesting compliance with the summonses in their current form, ” he concluded he was willing to meet with Lopez to make a “good faith effort” to limit the scope of the records to be produced. Id.

         Vaught neither appeared before the IRS on March 13, 2018, nor produced any testimony or materials as directed by the summonses. The parties communicated with each other over the next several months. They discussed Lopez coming to the Alpha Companies’ offices for an interview with Vaught and document review during the week of July 23, 2018. Lopez was ultimately unable to attend such a meeting because she was retiring and advised Vaught that her caseload would be transferred to other agents prior to her retirement in August. The IRS subsequently transitioned Lopez’s cases relating to the Alpha Companies Summonses to Revenue Agent Julia Keene. After Lopez retired in August 2018, there is no record of the parties corresponding.

         On October 17, 2018, the Government filed its petition to enforce the IRS’s Alpha Companies Summonses. On November 26, 2018, Respondent Vaught filed his answer and opposition to the Government’s petition. He also filed the pending motion for an evidentiary hearing to cross-examine Keene, as the IRS’s declarant to its petition to enforce the summonses, and Lopez, as the summonses’ issuing agent. On the same day, SCCC and Crow (collectively, “Intervenors”) filed their memorandum of opposition to the Government’s petition to enforce the Alpha Companies Summonses. On December 21, 2018, Intervenors requested this litigation be stayed pending the outcome of Intervenors’ consolidated appeals in the Pioneer Title Summons Cases.

         On February 26, 2019, the Ninth Circuit issued an opinion in an unrelated IRS third-party summons enforcement case. Based on the Ninth Circuit’s holding in that case, Intervenors filed the pending motion on April 12, 2019, for leave to amend and supplement their opposition to the petition and motion to quash.

         On July 31, 2019, the Government submitted notice of the Ninth Circuit’s July 29, 2019 order and memorandum concerning the Pioneer Title Summons Cases. The Ninth Circuit affirmed that an evidentiary hearing was unnecessary in those cases because petitioners had failed to provide specific facts and circumstances that raised a plausible inference that the IRS had improper motives in its investigation of Crow and SCCC.

         On September 13, 2019, Intervenors filed a notice of intent to further supplement their opposition to the Government’s petition by October 11, 2019, based on documents the IRS has produced to them in the past month. Intervenors requested that the Court refrain from ruling on the Government’s petition until Intervenors have an opportunity to seek leave to amend based on the newly produced materials. If and when Intervenors do file their second motion to supplement their opposition to the Government’s petition, the Court will consider the motion on the merits prior to ruling on Government’s petition.

         III. ...


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