Opinion
For United States of America, Plaintiff: Ellen K. Weis, LEAD ATTORNEY, U.S. Department Of Justice, Washington, DC; Jacqueline Camille Brown, LEAD ATTORNEY, United States Department of Justice, Washington, DC; Michael Richard Pahl, GOVT, LEAD ATTORNEY, Department Of Justice, Civil Tax Central, Washington, DC; Stephen J. Schaeffer, U.S. Department of Justice, Tax Division, Washington, DC.
Lowell Baisden, Defendant, Pro se, Taft, CA.
ORDER GRANTING IN PART DEFENDANT'S MOTION TO CLARIFY AND MODIFY PERMANENT INJUNCTION (ECF No. 263) ORDER DENYING DEFENDANT'S MOTION TO REOPEN DISCOVERY (ECF No. 267) ORDER GRANTING PLAINTIFF'S MOTION TO DISMISS I.R.C. SECTION 7407(b)(2) CLAIM WITHOUT PREJUDICE (ECF No. 260) CLERK TO ENTER JUDGMENT
Anthony W. Ishii, SENIOR DISTRICT JUDGE.
I. PROCEDURAL BACKGROUND
On September 29, 2006, the United States of America (" Plaintiff" or " USA") filed a complaint seeking a permanent injunction pursuant to Sections 7402, 7407, and 7408 of the Internal Revenue Code (26 U.S.C. or I.R.C.) that permanently bars Lowell Baisden (" Defendant" or " Baisden") from (a) promoting any investment, business venture, or other plan or arrangement and in connection therewith making false or fraudulent representations about federal tax benefits or treatment, (b) engaging in any other activity subject to penalty under I.R.C. Sections 6700 and 6701, or any other penalty provision in the I.R.C., (c) preparing, assisting, or filing federal income tax returns, amended returns, and other related documents and forms for others, (d) causing other persons or entities to understate their federal tax liabilities and avoid paying federal taxes, (e) engaging in any other activity subject to penalty under I.R.C. Sections 6694 and 6695, (f) representing anyone before the Internal Revenue Service (" I.R.S."), and (g) engaging in any other conduct that interferes with the administration or enforcement of the internal revenue laws.
On February 19, 2014, the undersigned adopted the Magistrate Judge's March 25, 2013 findings and recommendations which inter alia granted in part Plaintiff's motion for summary judgment as follows:
Pursuant to I.R.C. Section 7408, Defendant, his agents, servants, employees, attorneys, and all persons in active concert or participation with him, are permanently ENJOINED from directly or indirectly, advising, promoting, facilitating, or participating in:
1. The Plan as defined in the findings and recommendations, from (a) making representations about federal tax benefits or a tax treatment which Defendant knows or has reason to know are materially false and fraudulent and based thereon; (b) organizing, promoting, and participating in a scheme by which individual personal service providers assign or invest income with wholly owned corporations; (c) claiming on a corporations' tax returns unlawful deductions for nondeductible personal expenses; (d) reporting income to individual personal service providers as rental or royalty income; (e) not reporting a corporation's payments of the service providers' personal expenses as constructive dividends for which taxes are due; and (f) not reporting self-employment or social security tax liability on personal service income that has been misclassified as rental or royalty income;
2. Any other investment, business venture, other plan, or arrangement making false or fraudulent representations about federal tax benefits or treatment;
3. Any other activity subject to penalty under I.R.C. Sections' 6700 and 6701, or any other penalty provision in the Internal Revenue Code;
4. Causing other persons or entities to understate their federal tax liabilities and avoid paying federal taxes;
5. Any other activity subject to penalty under I.R.C. Sections 6694 and 6695;
6. Any other conduct that interferes with the administration or enforcement of the Internal Revenue Code and all internal revenue laws; and
7. Any future tax method, scheme, plan, or arrangement of any kind, whatsoever, without express I.R.S. approval.
(See ECF No. 252 at 9:15-25.) The adopted findings and recommendations denied Plaintiff summary judgment on its request to permanently bar Baisden from preparing federal tax returns under I.R.C. Section 7407(b)(2).
Before the Court are (1) Plaintiff's Rule 41(a)(2) motion to dismiss without prejudice the I.R.C. Section 7407(b)(2) claim, and for entry of judgment, (2) Defendant's motion to clarify and modify permanent injunction, and (3) Defendant's motion to re-open discovery. Briefing is complete and the Court if ready to rule. Local Rule 230.
II. DISCUSSION
A. Clarification and Modification of Permanent Injunction
Defendant asserts the above injunction is deficient under Rule 65 because it prohibits a legal act, i.e., avoidance of tax, and uses " general and sweeping language", prohibiting all possible breaches of a statute and failing to describe specifically and in reasonable detail the acts restrained.
Plaintiff concedes the need to modify provisions 2, 3, 5, 6, 7 above to relate them to the Plan, the conduct at issue in this case, and suggests modification of provision 4 above to clarify that it relates to " illegal" avoidance of federal taxes. However, Plaintiff contends that provision 1 above is specific and enforceable as is and should not be modified or stricken.
The Court finds good cause to clarify and modify the permanent injunction entered on February 19, 2014, to provide that the actions restrained are those in furtherance of the Plan. See e.g., Interstate Commerce Commission v. Keeshin Motor Exp. Co., 134 F.2d 228, 231 (7th Cir. 1943) (courts may restrain statutory violations similar to those already committed). The district court has equitable discretion in fashioning injunctive relief, United States v. Oakland Cannabis Buyers' Coop., 532 U.S. 483, 496, 121 S.Ct. 1711, 149 L.Ed.2d 722 (2001), and may modify a permanent injunction. Baker v. GMC, 522 U.S. 222, 230, 118 S.Ct. 657, 139 L.Ed.2d 580 (1998).
Under Rule 65, " [e]very order granting an injunction must . . . state its terms specifically" as well as " describe in reasonable detail . . . the act or acts restrained or required." Fed.R.Civ.P. 65(d). The instant clarification and modification is necessary to specifically describe enjoined conduct that violates a statute. See SEC v. Sky Way Global, LLC, 710 F.Supp.2d 1274, 1278 (M.D. Fla. 2010) (" obey the law" injunctions do not meet the required standard of specificity).
Accordingly, the Court finds good cause to reconsider and modify the permanent injunction to specifically provide that enjoined activities must be in furtherance of the Plan, as provided below. Fed.R.Civ.P. 60(b)(6); Fed.R.Civ.P. 65; Marlyn Nutraceuticals, Inc. v. Mucos Pharma GmbH & Co., 571 F.3d 873, 880 (9th Cir. 2009).
The permanent injunction otherwise is to continue in full force and effect.
B. Reopen Discovery
Defendant seeks a reopening of discovery so he can make a Rule 34 request for production of I.R.S. audit documents from customer audits. He claims he needs this discovery to use at the evidentiary hearing he requests and in opposition to the motion to dismiss discussed below. These documents, he claims, will show (1) the I.R.S. knew he was not involved in significant I.R.C. Section 6700 violation, (2) the I.R.C. Section 6701 penalty assessed against him is unwarranted, and (3) the I.R.S. knew its media release about this case was false.
Plaintiff responds that there is no good cause to reopen discovery because (1) Defendant did not diligently seek the instant discovery - extensive discovery was conducted prior to stay of the action in 2008 and additional discovery was allowed after the stay lifted -- yet no request was made for the instant documents, (2) the Court recently found Defendant unable to support Rule 56(d) discovery, (3) the proposed discovery will not lead to relevant evidence - Defendant's instant claims are baseless - he has no counterclaims -- Plaintiff's requested dismissal leaves no claim in controversy, and (4) Plaintiff has substantially prevailed in this action and would be prejudiced were discovery to reopen and issues resolved in its favor relitigated.
The Court finds Defendant has not demonstrated good cause to reopen discovery. Nothing suggests Defendant diligently sought but was unable to discover relevant information. Fed.R.Civ.P. 26(b). Significantly, Defendant did not object to the Magistrate's denial of Rule 56(d) discovery. (See ECF Nos. 245, 252.) Defendant demonstrates no basis in fact or law to reconsider this ruling. Rule 60(b). Defendant has not demonstrated the discovery he seeks is relevant to any claim or defense before the Court.
Defendant may not, by this motion, reargue or collaterally attack the Court's February 19, 2014 order granting in part permanent injunctive relief.
Defendant's motion to reopen discovery lacks merit.
C. Motion to Dismiss
Plaintiff asserts that it no longer seeks to permanently bar Baisden from preparing federal tax returns under I.R.C. Section 7407(b)(2). This being the only issue remaining for trial, Plaintiff seeks dismissal of the Section 7407(b)(2) claim without prejudice. Dismissal without prejudice will allow Plaintiff to later seek a Section 7407(b)(2) permanent ban should Defendant's future conduct justify it. That Baisden may be subject to subsequent suit is not prejudice for purposes of Rule 41(a)(2). See Hamilton v. Firestone Tire & Rubber Co., Inc., 679 F.2d 143, 145 (9th Cir. 1982).
Plaintiff also seeks entry of judgment on the order adopting findings and recommendations.
Defendant claims Plaintiff misrepresents Defendant's position on settlement and the remaining issues. He seeks to condition dismissal of the action on the following:
1. Baisden maintains that he substantially prevailed in this action and should be compensated for Plaintiff's unconscionable behavior, including $2,852,120 for lost income and time spent on this and related litigation, $966,000 for loss of his tax practice and $330,812 in retained attorney's fees.
2. The injunctive relief ordered by the district judge should be modified because in large part it is vague, inequitable and unenforceable.
3. He also wants his I.R.S. identification numbers, currently in suspension, reactivated so he can again prepare tax returns; an I.R.S. agent assigned to monitor his compliance with the injunction; reduction of I.R.C. Section 6701 penalties assessed against him by the I.R.S. in 2009; an evidentiary hearing to establish facts of the foregoing.
Plaintiff concedes the need to modify certain provisions of the February 19, 2014 injunction, as above. Otherwise, Plaintiff responds that Defendant has no claims in issue and further discovery is inappropriate.
A decision whether to allow a party to voluntarily dismiss a case rests upon the sound discretion of the court. See, e.g., Bodecker v. Local Union No. P-46, 640 F.2d 182, 186 n.5 (8th Cir. 1981). In exercising that discretion, a court should consider factors such as whether the party has presented a proper explanation for its desire to dismiss, see, e.g., Paulucci v. City of Duluth, 826 F.2d 780, 783 (8th Cir.1987); whether a dismissal would result in a waste of judicial time and effort, see, e.g., Tikkanen v. Citibank (South Dakota) N.A., 801 F.Supp. 270, 273-74 (D. Minn. 1992); and whether a dismissal will prejudice the defendants, see, e.g., Metropolitan Federal Bank of Iowa, F.S.B. v. W.R. Grace & Co., 999 F.2d 1257, 1262 (8th Cir. 1993). Likewise, a party is not permitted to dismiss merely to escape an adverse decision or to seek a more favorable forum. See, e.g., Holmgren v. Massey-Ferguson, Inc., 516 F.2d 856, 857 n.1 (8th Cir. 1975); International Shoe Co. v. Cool, 154 F.2d 778, 780 (8th Cir. 1946).
Here, the Court has considered the facts and circumstances under the above standard and finds it proper to dismiss the remaining I.R.C. Section 7407(b)(2) claim without prejudice. Fed.R.Civ.P. 41(a)(2). Plaintiff does not desire to permanently enjoin Defendant from preparing federal tax returns, but may seek such relief in future should Defendant prepare false or fraudulent returns. Dismissal as requested does not appear to be motivated by any improper purpose and avoids unnecessary consumption of judicial resources. Nothing suggests Defendant would suffer prejudice should dismissal be granted. Mere exposure to future suit is not a basis to claim prejudice. See Smith v. Lenches, 263 F.3d 972, 975 (9th Cir. 2001) (district court should grant motion for voluntary dismissal unless defendant can show it will suffer some plain legal prejudice as a result).
Defendant's request to modify the injunction to provide for an I.R.S. monitor, I.R.S. tax preparer numbers, modification of previously assessed I.R.S. penalties, and for attorney fees and compensatory damages is not properly before the Court. Defendant has no pending counter-claims. The Court declines any award of attorney's fees to Defendant on the present facts and circumstances. Rule 41 is not an independent basis for imposition of attorney's fees. See Heckethorn v. Sunan Corp., 992 F.2d 240, 242 (9th Cir. 1993). Defendant provides no supporting authority for his request. See Alyeska Pipeline Service Co., v. Wilderness Society, 421 U.S. 240, 257, 95 S.Ct. 1612, 44 L.Ed.2d 141 (1975) (attorney's fees are not ordinarily recoverable). Nothing before the Court suggests Plaintiff has acted in bad faith or abuse of litigation. See Heckethorn, 992 F.2d at 242 (no fee award where no statutory basis and no bad faith or abusive litigation practice).
Defendant provides no basis for award of attorney's fees. He may not here reargue the propriety of and authority for the previously entered permanent injunction.
III. ORDER
Accordingly, for the reasons stated, IT IS HEREBY ORDERED that:
1. Defendant's motion to clarify and modify permanent injunction is GRANTED IN PART such that sections 2 through 7 of the permanent injunction (i.e., ECF 252 at 9:15-25) are modified by the addition of the following underlined text:
2. Any other investment, business venture, other plan, or arrangement making false or fraudulent representations about federal tax benefits or treatment, in furtherance of the Plan;
3. Any other activity subject to penalty under I.R.C. Sections' 6700 and 6701, or any other penalty provision in the Internal Revenue Code, in furtherance of the Plan;
4. Causing other persons or entities to understate their federal tax liabilities and avoid paying federal taxes, in furtherance of the Plan;
5. Any other activity subject to penalty under I.R.C. Sections 6694 and 6695, in furtherance of the Plan;
6. Any other conduct that interferes with the administration or enforcement of the Internal Revenue Code and all internal revenue laws, in furtherance of the Plan; and
7. Any future tax method, scheme, plan, or arrangement of any kind, whatsoever, in furtherance of the Plan, without express I.R.S. approval.
2. Defendant's motion to reopen discovery is DENIED,
3. Plaintiff's motion to dismiss without prejudice the I.R.C. section 7407(b)(2) claim is GRANTED,
4. All scheduled dates are vacated,
5. The Clerk's Office is directed to enter judgment upon the order adopting findings and recommendations (ECF No. 252) and this Order.
IT IS SO ORDERED.