Opinion
Case No. CV-01-092-E-PLW
February 20, 2003
MEMORANDUM DECISION AND ORDER
The Court has before it the United States' Motion for Partial Summary Judgment (Docket No. 55) and Motion for Summary Judgment (Docket No. 62); the Defendants' Motion for Extension of Time (Docket No. 101); and the Defendants' Motion for Reconsideration of the Court's Order entered December 19, 2003 (Docket No. 102). The Court also has before it the Motions to Withdraw (Docket Nos. 86 and 89) filed by Crystal Sluyter and Douglas K. Merkley.
I. Background
The Government commenced this action seeking to reduce to judgment various federal tax assessments and civil penalties they allege are owed by Clyde W. Stock and Rea B. Stock, jointly and severally, for the tax years 1993, 1994, 1995, and 1996; and by Clyde W. Stock, individually, for the tax years 1994, 1995, and 1996. The Government also seeks to foreclose federal tax liens against two parcels of real property.
A. 1993 Tax Year
For the 1993 tax year, the Stocks filed a joint income tax return reporting gross receipts of $544,100.00 on their Schedule C from Mr. Stock's medical practice, with "management fees" deducted as cost of goods sold in the amount of $381,511.00, and a taxable income of $45,330.00. See Cheng Decl. filed 8/19/02 (Docket No. 64), Ex. 3 and Ex. 6. The Internal Revenue Service ("IRS") subsequently audited the Stocks for the 1993 tax year, disallowed certain deductions claimed by the Stocks, recomputed the tax liabilities, and made assessments of income taxes, penalties, and interest against the Stocks for the 1993 tax year.
Notices of the assessments and demands for payment of the assessed amounts were made upon the Stocks. See Cheng Decl. filed 5/29/01 (Docket No. 12), Ex. 1. The Stocks have not to date paid these assessments. As of December 27, 2000, there remains due and owing on the assessments against Clyde and Rea Stock for the 1993 tax year $278,270.51, plus interest. See id. On July 30, 1998, the Government filed a Notice of Federal Tax lien relating to the assessments for the 1993 tax year with the County Recorders Office for Caribou County, Idaho. See Cheng Decl. filed 8/19/02 (Docket No. 64), Ex. 9.
B. 1994, 1995, and 1996 Tax Years
With regard to the 1994, 1995, and 1996 tax years, in October 1998, Clyde Stock filed amended returns for each of these years claiming that because "his trade of being an oral surgeon" is a "non-taxable activity," his adjusted gross income fbr the years 1994, 1995 and 1996 should be reduced as follows; for the 1994 tax year, adjusted gross income of $501,291.00 should be reduced to $1,647.00 for 1994; for the 1995 tax year, adjusted gross income of $506,967.00 should be reduced to $2,444.00; and for the 1996 tax year, adjusted gross income of $328,048.00 should be reduced to $0.00. See Cheng Decl. filed 8/19/02 (Docket No, 64), Ex. 3. Mr. Stock also claimed to be was entitled to a refund in the amount of $5,040.00 for each of the tax years of 1994, 1995, and 1996. See id.
The IRS found the 1994, 1995, and 1996, amended returns to be substantially incorrect and frivolous and assessed civil penalties against Mr. Stock. See Cheng Decl. filed 5/29/01 (Docket No. 12), Ex. 5, 6, and 7. Notices of the civil penalty assessments and demands for payment of the assessed amounts were made upon Mr. Stock. See id. Mr. Stock has not to date paid the assessed amounts. See id. As of December 27, 2000, there remains due and owing $1,518.31 on the se civil penalties assessed against Mr. Stock. See id. On March 21, 2000, the Government filed a Notice of Federal Tax Lien relating to these civil penalty assessments with the County Recorders Office for Caribou County, Idaho. See Cheng Decl. filed 8/19/02 (Docket No. 64), Ex. 10.
In November 1997, the Stocks filed a petition and amended petition in the United States Tax Court seeking a determination of the deficiencies for the tax years 1994, 1995, and 1996. See Cheng Decl. filed 6/20/02 (Docket No. 55), Ex. 5, 6. In April 1999, the Tax Court issued its oral findings and opinion, rejecting as "incorrect . . . ludicrous and frivolous" the Stocks' argument that the income from Mr. Stock's work as an oral surgeon was non-taxable under the Internal Revenue Code. See Cheng Decl. filed 6/20/02 (Docket No. 55) Ex. 9.
In December 1999, the Tax Court issued its written decision incorporating its oral findings of fact and opinion issued in April 1999, and ordered deficiencies, penalties, and additions to tax due from the Stocks in the following amounts: (1) for the 1994 tax year, a deficiency of $107,979.00, and penalties of $26,995.00 and $5,574.00; (2) for the 1995 tax year, a deficiency of $109,416.00, and Penalties of $27,354.00 and $5,860.00; and (3) for the 1996 tax year, a deficiency of $80,184.00, and penalties of $20,046.00, $4,268.00, and $10,000. See Cheng Decl. flied 6/20/02 (Docket No. 55), Ex. 7.
The IRS assessed the tax deficiencies, penalties, and additions set out by the Tax Court for the 1994, 1995, and 1996 tax years, with an adjustment made for pre-assessment credits. Notices of the assessments and demands for payment of the assessed amounts for the 1994, 1995, and 1996 tax years were made upon the Stocks. See Cheng Decl. filed 5/29/01 (Docket No. 12), Ex. 2, 3, and 4. The Stocks have not to date fully paid these assessed amounts. As of December 27, 2000, there remains due and owing on these assessments for the tax years 1994, 1995, and 1996, against Clyde and Rea Stock, jointly and severally, the sum of $533,052.56. See id. In October 2000, the Government filed Notices of Federal Tax Lien relating to these assessments with the County Recorders Office for Caribou County, Idaho. See Cheng Decl. filed 6/20/02 (Docket No. 55), Ex. 9 and 10.
C. The Real Property
The Government seeks to foreclose its tax liens against two parcels of real property.
1. Parcel 1
The first parcel the Government seeks to foreclose its tax liens against ("Parcel 1") is legally described as:
Township 5 South, Range 46 East of the Boise Meridian:
Section 7: NE1/4 SE1/4
Section 8: S1/2 N1/2, SW1/4, NE1/4 SE1/4, W1/2 SE1/4
Section 9: That portion of the NW1/4 SW1/4 lying North of the Soda Springs-Freedom Highway. Also that part of the SW1/4 NW1/4 lying West of the Center Line of Tin Cup Creek, as said Creek is presently located.
EXCEPT: That part of the SE1/4 of Section 8 and the W1/2 SW1/4 of Section 9, Township 5 South, Range 46 East, Caribou County, Idaho, being part of those tracts of record in the Office of the Recorder of Caribou County as Instrument No. 51588 and 151013, it being the intent to more correctly describe that tract of record in said Office as Instrument No. 153139, described as follows: Beginning at the Southwest Corner of said Section 8; thence North 89°55'19", 1292.63 feet, along the South line of said Section 8 to a point on a fence, South 89°55'19" East, 30.92 feet, of the Southwest Corner of the SE1/4 SE1/4 of said Section 8; thence North 05°44'43" West 1354.03 feet, along said fence to a point at a fence corner; thence South 88°36'12" East, 1428.52 feet, along a fence to a point on the East line of said Section 8, South 00°00'12" East, 5.77 feet of the Northeast Corner of said SE1/4 SE1/4; thence continuing South 88°36'12" East, 48.84 feet, along said fence to a point at a fence corner; thence North 01°06'25" East, 197.24 feet, along a fence to a pipe; thence North 89°19'16" East, 206.11 feet, along a fence to a pipe; thence North 01°26'41" East, 124.97 feet, along a fence to a pipe; thence North 42°26'28" East, 381.80 feet, along a fence to a pipe; thence North 08°02'41" West, 239.92. feet, along a fence to a pipe; thence continuing North 08°02'41" West, 53.60 feet, more or less, to the centerline of State Highway No. 34 (Tincup Road) of record in said Office as Instrument No. 45374, and leave said boundary; thence coursing said centerline as follows: Easterly, 54 feet, more or less, along a spiral curve to the left, whose chord is North 82°32'04" East, 53.85 feet, to the end thereof; North 79°32'06" East, 142.05 feet, to the beginning of a spiral curve to the right; Easterly, 300.00 feet, along said spiral curve, whose chord is North 81°02'05" East, 299.91 feet, to the beginning of a circular curve to the right; Easterly, 355.31 feet, along said circular curve, through a central angle of 07°06'23", having a radius of 2864.77 feet and a chord of North 86°05'17" East, 355.09 feet, to the East line of said W1/2 SW1/4, and leave said centerline; thence South 00°00'18" West, 2310.48 feet, along said East line to the Southeast Corner of said W1/2 SW1/4; thence South 89°51'38" West. 1321.77 feet, along the South line of said Section 9 to the corner of beginning.
ALSO EXCEPT: All that portion lying within the State of Idaho Highway right of way.
The Stocks purchased portions of the 480 acres that make up Parcel 1 from a third party by warranty deed in 1968. See Cheng Decl. filed 8/19/02 (Docket No. 64), Ex. 11. The Stocks purchased the remaining portions of the 480 acres that make up Parcel 1 from a third party by warranty deed in 1973. See Cheng Decl. filed 8/19/02 (Docket No. 64), Ex. 12.
In May 1982, the Stocks recorded a warranty deed purporting to transfer Parcel 1 from the Stocks to Clyde W. Stock and Rea B. Stock as trustees of the "Clyde W. Stock and Rea B. Stock 1982 Idaho Trust" ("1982 Idaho Trust"). See Cheng Decl. filed 8/19/02 (Docket No. (54), Ex. 13. In March 1984, the Stocks recorded a "correction" warranty deed, to "correct" the warranty deed recorded on May 27, 1982, and again purporting to transfer Parcel 1 from the Stocks to Clyde W. Stock and Rea B. Stock as trustees of the 1982 Idaho Trust. See Cheng Decl. filed 8/19/02 (Docket No. 64), Ex. 14. In December 1984, the Stocks recorded yet another warranty deed purporting to again transfer Parcel 1 from the Stocks to Clyde W. Stock and Rea B. Stock as trustees of the 1982 Idaho Trust. See Cheng Decl. filed 8/19/02 (Docket No. 64), Ex. 15.
In March 1985, the Stocks, individually and as trustees of the 1982 Idaho Trust, executed and recorded a warranty deed purporting to convey title to Parcel 1 from the Stocks, individually and as trustees of the 1982 Idaho Trust, to Debra Stock for a stated consideration of $1.00. See Cheng Decl. 8/19/02, Ex. 16. In June 1985, a warranty deed was recorded purporting to transfer Parcel 1 from Debra Stock to Rea B. Stock for a stated consideration of $1.00. See Cheng Decl. filed 8/19/02 (Docket No. 64), Ex. 17.
In December 1987, Mrs. Stock, as an individual and as trustee of the "Rea B. Stock 1982 Wyoming Trust" ("1982 Wyoming Trust"), executed and recorded a quitclaim deed purporting to convey title of Parcel 1 from Mrs. Stock, individually and as trustee of the Wyoming Trust, to "The Clyde W. Stock Family Limited Partnership-A, a California Limited Partnership" ("Stock Family Partnership") for a stated consideration of $10.00. See Cheng Decl. filed 8/19/02 (Docket No. 64), Ex. 18.
In January 1988, Mrs. Stock, individually and as trustee of the 1982 Wyoming Trust, executed and recorded a "corrected" quitclaim deed purporting to convey title of Parcel 1 from Mrs. Stock, individually and as trustee of the 1982 Wyoming Trust, to the Stock Family Partnership for a stated consideration of $10.00. See Cheng Decl. filed 8/19/02 (Docket No. 64), Ex. 19.
On May 2, 1988, Mr. Stock, as the general partner of the Stock Family Partnership, recorded a quitclaim deed purporting to convey title of Parcel I from the Stock Family Partnership to the Stocks as co-trustees of "The Rea B. Stock Trust" for a stated consideration of 10.00. See Cheng Decl. filed 8/19/02 (Docket No. 64), Ex. 20.
On May 31, 1988, Mrs. Stock, individually and as trustee of the 1982 Wyoming Trust, recorded a "corrected" quitclaim deed purporting to again convey title of Parcel 1 from Mrs. Stock, individually and as trustee of the 1982 Wyoming Trust, to the Stock Family Partnership for a state consideration of $10.00. See Cheng Decl. filed 8/19/02 (Docket No. 64), Ex. 21. Also on May 31, 1988, Mr. Stock recorded a quitclaim deed purporting to convey title of Parcel 1 from Mr. Stock to the Stocks as co-trustees of the Rea B. Stock Trust for a stated consideration of $10.00. See Cheng Decl. filed 8/19/02 (Docket No. 64), Ex. 22.
In October 1989, a quitclaim deed was recorded that purported to transfer title of Parcel 1, for a stated consideration of $1.00, from Mr. Stock and Mrs. Stock, as husband and wife, Mr. Stock, the Stock Family Partnership, and Mrs. Stock, as trustee of the 1982 Wyoming Trust, to the Stocks, as co-trustees of the Rea B. Stock Trust. See Cheng Decl. filed 8/19/02 (Docket No. 64), Ex. 23.
On January 12, 1993, a quitclaim deed was recorded purporting to convey title of Parcel 1 from the Rea B. Stock Trust to "The Clyde W. Stock Family Trust" ("Stock Family Trust"). See Cheng Decl. filed 8/19/02 (Docket No. 64), Ex. 24. On January 13, 1993, a quitclaim deed was recorded purporting to convey title of Parcel 1 from the Stocks as trustees of the Stock Family Trust to "The Tin Cup Trust" See Cheng Decl, filed 8/19/02 (Docket No. 64), Ex. 25.
On October 26, 1993, a "Real Estate Mortgage" executed by Mr. Stock, as trustee of the Tin Cup Trust, was recorded. See Cheng Decl. filed 8/19/02 (Docket No 64), Ex. 26. The mortgage purportedly secured Parcel 1 to an obligation to the Dollar Trust in the amount of $2,000,000.00. See id.
On September 25, 1995, a quitclaim deed was recorded that purported to correct the quitclaim deed recorded on January 12, 1993, and purported to convey title of Parcel 1 from the Stocks as trustees of the Rea B. Stock Trust to the Stock Family Trust for a stated consideration of $21.00. See Cheng Decl. filed 8/19/02 (Docket No. 64), Ex. 27.
On September 28, 1995 a quitclaim deed was recorded that purported to correct the quitclaim deed recorded on January 13, 1993, and purported to convey title of Parcel 1 from H. Keith Woolley and Donna G. Woolley, as trustees of the Stock Family Trust, to the Tin Cup Trust for a stated consideration of $21.00. See Cheng Decl. filed 8/19/02 (Docket No. 64), Ex. 28.
On October 26, 1995, a quitclaim deed was recorded purporting to convey title of Parcel 1 from Mrs. Stock, as trustee of the Tin Cup Trust, to E. Keith Woolley, as trustee of "Our Trust One," for a stated consideration of $21.00. See Cheng Decl. filed 8/19/02 (Docket No. 64), Ex. 29.
On August 21, 1996, a warranty deed was recorded that purported to convey title of Parcel 1 from Our Trust One to "Stillwater Management Trust" for a stated consideration of $21.00. See Cheng Decl. filed. filed 8/19/02 (Docket No. 64), Ex. 30.
On March 6, 1997, a quitclaim deed was recorded that purported to convey title of Parcel 1 from Mr. Stock, as trustee of the Stillwater Management Trust, to Corporation Sole for a stated consideration of $21.00. See Cheng Decl. filed 8/19/02 (Docket No. 64), Ex. 31.
On October 20, 1998, the Government filed a Notice of Federal Tax Lien at the county recorder's office for the County of Caribou, Idaho, regarding the assessments against the Stocks for the 1993 tax year, and attaching the interest of Clyde W. Stock, Corporation Sole, as nominee for Clyde W. Stock and Rea B. Stock, in Parcel 2.
2. Parcel 2
The second parcel the Government seeks to foreclose its tax liens against ("Parcel 2") is legally described as;
Township 5 South, Range 46 East of the Boise Meridian, Caribou County, Idaho: Sections 15 and 22: Beginning at a point 828.3 feet West and 463.98 feet North of the Southeast corner of Lot 1 of said Section 22 and running thence North 2194.5 feet; thence East 19.8 feet; thence North 660 feet, more or less, to a point no farther North than 641.52 feet South of the East and West center lines of said Section 15; thence West 528 feet, more or less, to a point no nearer than 176.55 feet East of the North and South center lines of said Sections 15 and 22; thence South 3019.5 feet, more or less, to a point no nearer than 176.55 feet East of the North and South center line of said Section 22, which last mentioned point is approximately 503.25 feet Southwest of the point of beginning; thence in a Northeasterly direction 50325 feet, more or less, to the point of beginning. EXCEPT THEREFROM, any portion of the above described tract lying South of the following described time: Beginning at a point 2023.1 feet North and 1554.6 feet East from the West Quarter Corner of said Section 22, and North 00°27'23" East 854.93 feet and North 89°34'06" East 800.97 feet and North 00°19'31" West 1224.0 feet to the POINT OF BEGINNING of said line, and running thence South 74°50'39" East 480.0 feet; thence South 83°27'49" East 504.8 feet, to the point of ending of said line.
Tin Cup Trust purchased Parcel 2 from a third party by warranty deed on or about January 10, 1996, for the stated consideration of $25,000.00. See Cheng Decl. filed 8/19/02 (Docket No. 64), Ex. 32. On August 21, 1996, a warranty deed was recorded that purported to convey title of Parcel 2 from Mr. Stock, as trustee of the Tin Cup Trust, to Stillwater Management Trust for a stated consideration of $21.00. See Cheng Decl. filed 8/19/02 (Docket No. 64), Ex. 33.
On March 6, 1997, a quitclaim deed was recorded that purported to convey title of Parcel 2 from Mr. Stock, as trustee of Stillwater Management Trust, to Corporation Sole for a stated consideration of $21.00.
On October 20, 1998, the Government filed a Notice of Federal Tax Lien at the county recorder's office for the County of Caribou, Idaho, regarding the assessments against the Stocks for the 1993 tax year, and attaching the interest of Clyde W. Stock, Corporation Sole, as nominee for Clyde W. Stock and Rea B. Stock, in Parcel 2. See Cheng Decl. filed 8/19/02 (Docket No. 64), Ex. 35.
D. Procedural History
On March 2, 2001, the United States filed the present action seeking to reduce to judgment various federal tax assessments and civil penalties they allege are owed by Clyde W. Stock and Rea B. Stock, jointly and severally, for the tax years 1993, 1994, 1995, and 1996; and by Clyde W. Stock, individually, for the tax years 1994, 1995, and 1996. The United States also seeks to foreclose federal tax liens against two parcels of real property.
On December 31, 2001, the Stocks moved to dismiss the action for failure to state a claim upon which relief could be granted. In an order filed on March 18, 2002, the Court denied the motion to dismiss. On April 26, 2002, the Stocks flied an answer, through their retained counsel, Crystal Sluyter, an attorney not licensed to practice before the Court. On May 1, 2002, the Court granted Ms. Sluyter's pro hac vice application, in which Doug K. Merkley, an attorney licensed to practice before the Court, agreed to act as co-counsel with authority to act as attorney of record for all purposes.
On June 20, 2002, the United States moved for partial summary judgment. On August 19, 2002, the United States moved for summary judgment. On September 20, 2002, the Stocks, through their retained counsel, filed their response in opposition to the United States' motions for summary judgment. On September 27, 2002, the United States filed its reply to the Stocks' opposition.
On September 30, 2002, the Stocks, through retained counsel, filed an emergency motion to continue all deadlines and matters beyond June 2003. In an Order entered. on October 23, 2002, the Court denied the motion to continue, noting that all briefing on the United States' pending motions for summary judgment had been completed and that the Court would allow the Stocks' counsel to participated by telephone in the November 14, 2002, hearing on the summary judgment motions.
On November 4, 2002, Ms. Sluyter moved to withdraw as counsel of record. On November 7, 2002, Mr. Merkley moved to withdraw as local counsel of record. In an order filed on November 7, 2002, the Court, after determining that oral argument on the motions for summary judgment was not necessary, vacated the November 14, 2002, hearing on the motions for summary judgment, and held in abeyance the motions to withdraw filed by the Stocks' counsel. Thus, the case was submitted on the parties' briefing and has been under advisement by the Court since November 7, 2002.
On November 22, 2002, the Stocks, through Robert Alan Jones, an attorney not licensed to practice before this Court, filed an ex parte motion to amend the pleadings and to stay the proceedings. On November 26, 2002, the Court approved Mr. Jones' pro hac vice application. In the application, Mr. Jones represented that co-counsel licensed to practice before this Court would be designated within thirty days.
On December 6, 2002, the Stocks moved for an extension of time to respond to the summary judgment motions that were currently under advisement, in an order filed December 11, 2002, the Magistrate Judge granted the motion for extension of time. In an order filed on December 19, 2002, the Court vacated the Magistrate Judge's order filed December 11, 2002, and denied the motion for extension of time, noting that the Magistrate Judge's order had the effect of overruling the Court's prior orders denying an extension of time, determining that the briefing on the pending summary judgment motions had been completed, determining that the summary judgment motions would be determined on the submissions already before the Court, and placing the summary judgment motions under advisement. The Court also denied the motion to stay the case and the motion to amend the pleadings.
On January 2, 2003, the Stocks filed a designation of co-counsel licensed to practice before this Court. On January 15, 2003, the Stocks moved for reconsideration of the Court's order filed December 19, 2003.
II. Discussion
A. Motion to Reconsider 1. Representation of Counsel
The Stocks seek reconsideration of the Court's Order entered December 19, 2003, vacating the Magistrate Judge's Order which had granted the Stocks an extension of time and which effectively overruled the Court's previous orders denying an extension of time, determining that the briefing on the summary judgment motions was completed, submitting the case on the briefs, and placing the case under advisement.
The Stocks' arguments regarding the motion for reconsideration related primarily to their representation by Ms. Sluyter. As to Ms. Sluyter's eligibility to represent the Stocks, the Stocks admit and provide evidence that Ms. Sluyter was licensed until November 2002. By that time, all briefing on the motions for summary judgment had been completed. Moreover, on November 7, 2002, the Court determined that oral argument would not assist the Court in deciding the summary judgment motions, vacated the hearing on the motions for summary judgment, submitted the case on the briefing already before the Court, and placed the case under advisement. Thus, by the time, or shortly after, Ms. Sluyter resigned from the bar, the case was under advisement. Ms. Sluyter's resignation could not, therefore, have impacted the Stocks' representation in this matter.
Ms. Sluyter represented to the Court, in applying for admission pro hac vice, that she had not been suspended or disbarred from practicing before any court. Ms. Sluyter's signature on the pro hac vice application is dated April 25, 2002. Thus, even assuming, as the Stocks contend, that Ms. Sluyter was suspended by the U.S. Tax Court on April 26, 2002, it appears that at the time Ms. Sluyter executed the pro hac vice application, she had not been suspended by the U.S. Tax Court.
Moreover, although the Stocks are clearly entitled to retain counsel to represent them in this proceeding, the Court does not find the adequacy or inadequacy of retained counsel's representation to be a sufficient basis to reconsider its prior orders in this matter.
The Stocks contend that "the issue here is due process rather than ineffective assistance of counsel." The Stocks do not, however, cite any authority, and the Court has found none, that supports the proposition that defendants in a civil matter are denied due process if their retained counsel renders inadequate representation. Nor is the Court persuaded that Ms. Sluyter's uncertain licensure status deprived them their due process of law. Ms. Sluyter was admitted pro hac vice to represent the Stocks in this case and that status continued until all briefing was completed. Arguably, that status has continued until she is permitted, in this Memorandum Dicision and Order, to withdraw as counsel of record. In any event, it is clear that the Stocks were actively represented by counsel of their own choosing through the completion of briefing on Plaintiff's motions for summary judgment. Whatever problems Ms. Sluyter may have had in maintaining her right to practice before the Tax Court, or in other jurisdictions, it did not result in a deprivation of the Stocks' right to due process of law.
As to Mr. Merkley, in the application and order for admission pro hac vice, Mr. Merkley was designated as, and consented to designation as, co-counsel with authority to act as attorney of record for all purposes. See Docket No. 51. The Court does not take lightly Mr. Merkley's consent that he would act as local co-counsel with authority to act as attorney of record in this matter, and is concerned by Mr. Merkley's attempt to now remove himself from any responsibility for this case by representing that he was not involved with the case, never spoke with the Stocks, and was simply acting as a "sponsor." See Aff. D. Merkley (Docket No. 90), at ¶¶ 2-3 ("I have never had communication with Defendants but only acted as the sponsoring attorney for Crystal Sluyter, pro hac vice. . . . I have no working knowledge of the case merits or arguments and have not been compensated for my services in any way."). Again, however, the Court does not find the adequacy or inadequacy of co-counsel's representation to be a sufficient basis to reconsider its prior orders in this matter.
2. Discovery
The Stocks again contend that the United States has not complied with discovery and/or disclosure requirements. As the Court previously noted, the appropriate remedy for the purported failure of the Government to comply with discovery and/or disclosure requirements is a motion to compel.
Moreover, to the extent the Stocks' argument could be construed as a motion under Federal Rule of Civil Procedure 56(f), the argument thus because the Stocks have not met the standard for relief under Rule 56(f). Specifically, the Stocks have not met their burden of demonstrating to the Court a connection between any discovery sought and the issues raised in the motions for summary judgment. See Terrell v. Brewer, 935 F.2d 1015, 1017-18 (9th Cir. 1991) (holding that under Rule 56(f), the nonmoving party must demonstrate that additional discovery would an cover specific facts which would preclude summary judgment).
3. Motion to Amend Answer
The Stocks also seek reconsideration of the Court's denial of their motion to amend their answer.
The deadline for amending the pleadings expired on October 25, 2002, almost one month prior to the date the Stocks filed their motion to amend. See Amend. Sched. Order (Docket No. 69). The Court must therefore analyze the Stocks' motion to amend their answer under the standard for modifying the Court's Scheduling Order, as set out in Federal Rule of Civil Procedure 16(b). See Coleman v. Quaker Oats co., 232 F.3d 1271, 1295 (9th Cir. 2000).
Under Rule 16(b), the Stocks must show "good cause" exists for extending the deadlines set out in the Scheduling Order. See id. "This standard `primarily considers the diligence of the party seeking the amendments" Id. (quoting Johnson v. Mammoth Recreations, Inc., 975 F.2d 604, 607-09 (9th Cir. 1992)). The Court may modify the Scheduling Order only if the deadlines set in the order "cannot reasonably be met despite the diligence of the party seeking the extension" Johnson, 975 F.2d at 609. "Although the existence or degree of prejudice to the party opposing the modification might supply additional reasons to deny a motion, the focus of the inquiry is upon the moving party's reasons for seeking modification. If that party was not diligent, the inquiry should end." Id. (citations omitted).
The Stocks state as grounds for allowing amendment that (1) their former counsel did not file affirmative defenses on their behalf "including but not limited to expiration of the statute of limitations regarding the internal Revenue Service tax assessments," and (2) that the Stocks have "uncovered favorable, newly discovered evidence through a forensic accounting expert witness that the Plaintiff, United States, has deliberately improperly withheld from them during discovery." See Mot. to Amend Answer (Docket No. 91). However, the Court does not find the mere failure of former counsel to previously file affirmative defenses to be good cause for modifying the scheduling order.
The Stocks' also assert that they have "uncovered favorable, newly discovered evidence" that the United States "has deliberately improperly withheld from them during discovery." The Stocks have not, however, explained why this evidence could not have been discovered earlier, have not explained what this evidence is, and have not provided anything to support their assertion that the United States' improperly withheld any such evidence during discovery. The Stocks have not, therefore, met their burden of showing that good cause exists for amending the scheduling order. The Court will accordingly deny reconsideration of the denial of the motion to amend the answer.
A. Motions for Summary Judgment 1. Summary Judgment Standard
Rule 56 of the Federal Rules of Civil Procedure mandates entry of summary judgment where the moving party demonstrates the absence of a genuine issue of material fact and entitlement to judgment as a matter of law. Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). A fact is "material" when, under the governing substantive law, it could affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A "genuine issue" of material fact arises if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Id. Where, as here, the case turns on a mixed question of fact and law and the only disputes relate to the legal significance of undisputed facts, the controversy collapses into a question of law suitable to disposition on summary judgment. Union Sch. Dist. v. Smith, 15 F.3d 1519, 1523 (9th Cir. 1994); Graham v. City of Chicago, 828 F. Supp. 576, 583 (N.D. Ill. 1993).
2. Assessments for Tax Years 1993, 1994, 1995, and 1996
The Stocks challenge the validity and propriety of the assessments for the 1993, 1994, 1995, and 1996 tax years. The Government contends that the Stocks are barred, under the doctrine of res judicata, from challenging the propriety of the assessments for the 1993, 1994, 1995, and 1996 income tax years.
Under the doctrine of res judicata, or claim preclusion, "a final judgment on the merits bars further claims by parties or their privies based on the same cause of action," Montana v. United States, 440 U.S. 147, 153 (1979). Res judicata only applies, however, "if the same primary right is involved in the two actions, and if the party against whom the earlier decision is asserted had a `full opportunity and fair opportunity to litigate the claim.'" In re Dominelli, 820 F.2d 313, 316 (9th Cir. 1987) (quoting Kremer v. Chemical Const. Corp., 456 U.S. 461, 480 n. 22 (1982)).
The Tax Court, in a written decision entered December 7, 1999, assessed the Stocks for deficiencies in Federal income tax, penalties, and additions in the following amounts: for 1994, a deficiency of $107,979.00, with total additions/penalties of $32,569.00; for 1995, a deficiency of $109,416.00, with total additions/penalties of $34,214; and for 1996, a deficiency of $80,184.00, with total additions/penalties of $34,314.00. See Cheng Decl. filed 6/20/02 (Docket No. 55), Ex. 7.
Moreover, in the case of Stock v. I.R.S, Case No. CV.-00-467-E-BLW, this Court held that the Form 4340s established a presumption that the IRS properly assessed the taxes in question, and that Mr. Stock's challenge to the assessments for the 1993, 1994, 1995, and 1996 tax years therefore failed. See Cheng Decl. filed 6/20/02 (Docket No. 55), Ex. 15, 16. The Stocks are therefore barred, under the doctrine of res judicata, from challenging in this proceeding the propriety of the assessments relative to the tax years 1993. 1994, 1995, and 1996, and the Government is entitled to entry of judgment, as a matter of law, against the Defendants, Clyde W. Stock and Rea B. Stock, jointly and severally, for the amount that remains due and owing on the assessments for those tax years.
This Court also held that Mr. Stock's challenge to the 1994, 1995, and 1996 assessments were barred, under the doctrine of res judicata, by the Tax Court's decision. See Cheng Decl. filed 6/20/02 (Docket No. 55), Ex. 15, 16.
Furthermore, the Stocks have admitted, by failing to respond to the Government's requests for admission, that they owe these tax liabilities, as well as the outstanding civil penalty assessments against Mr. Stock for the 1994, 1995, and 1996, tax years. See Fed.R.Civ.P. 36; Cheng Decl. filed 8/19/02 (Docket No. 64), Ex. 3, 6.
Finally, pursuant to 26 U.S.C. § 6203 and 26 C.F.R. § 301.6203, assessments are to be made in accordance with the applicable regulations and the taxpayer is to be supplied with a copy of the record of assessment upon request. A certificate of assessments and payments ("Form 4340") establishes presumptive evidence that a tax has been validly assessed under § 6203. See Huff v. United States, 10 F.3d 1440, 1445 (9th Cir. 1993) (Generally, courts have held that IRS Form 4340 provides at least presumptive evidence that a tax has been validly assessed under § 6203.). Form 4340 is highly probative and, in the absence of contrary evidence, is sufficient to establish that an assessment was properly made and that notices and demands for payment were sent. [Hughes v. United States, 953 F.2d 531, 535 (9th Cir. 1992).
The Government has submitted certified copies of the Form 4340's for the taxable years at issue in this proceeding. See Cheng Decl. filed 5/29/01 (Docket No. 12), Ex. 1-7. For the assessments against Clyde W. Stock and Rea B. Stock, for each of the relevant tax years, the forms set forth the Stocks' names and social security numbers; the amount of tax assessed; the amount of penalty assessed; the amount of interest due; the type of assessments; the tax period for which the taxes, penalties, and interest amounts were assessed; the date of the assessments; the dates on which notices of tax assessment were mailed; the dates on which notices of delinquency were mailed; and the dates the tax liens and/or levies were filed. See Cheng Decl. filed 5/29/01 (Docket No. 12), Ex. 1-4.
For the assessments against Clyde W. Stock, individually, for each of the relevant tax years. the forms set forth the Mr. Stock's name and social security number; the amount of tax assessed; the amount of penalty assessed; the amount of interest due; the type of assessments; the tax period for which the taxes, penalties, and interest amounts were assessed; the date of the assessments; the dates on which notices of tax assessment were mailed; the dates on which notices of delinquency were mailed; and the dates the tax liens and/or levies were filed. See Cheng Decl. filed 5/29/01 (Docket No. 12), Ex. 5-7,
These Forms 4340 establish a presumption that the IRS properly assessed the Stocks' taxes in question. The Stocks have presented no evidence to rebut this presumption of proper assessment. The Stocks claims of improper assessment relative to these tax years therefore fails.
For all of these reasons, the record establishes, as a matter of law, that as of December 27, 2000, the amount due and owing by the Stocks on the assessments for the 1994, 1995, and 1996, tax years is $533,052.56; and the amount due and owing by the Stocks on the assessments for the 1993 tax year is $278,270.51. The record also establishes, as a matter of law, that the amount due and owing by Mr. Stock on the civil penalty assessments against him for the tax years 1994, 1995, and 1996, is $1,518.31.
3. Foreclosure of Tax Liens on Parcels 1 and 2
When a taxpayer fails to pay a federal tax liability after assessment, notice, and demand for payment, a tax lien arises in favor of the United States upon all property and rights to property belonging to such person. See 26 U.S.C. § 6321. These tax liens arise at the time the taxes are assessed and continue until the liability for the amount assessed has been satisfied or becomes unenforceable by the lapse of time. See 26 U.S.C. § 6322. Tax liens of the United States are perfected upon assessment and no further action need be taken. See United States v. Vermont, 377 U.S. 351, 355 (1964). The Government may also impose a lien pursuant to 26 U.S.C. § 6321 on property in the hands of an alter ego of the taxpayer so long as the taxpayer is the equitable owner of the property. See G.M. Leasing Corp. v. United States, 429 U.S. 338, 350-51 (1977); Wolfe v. United States, 798 F.2d 1241, 1245 (9th Cir. 1986). As the Court recognized in G.M. Leasing,
"If petitioner was [the tax payer's] alter ego, it had no countervailing effect for purposes of his federal income tax. It would then follow that the Service could properly regard petitioner's assets as Norman's property subject to the lien under § 6321, and the Service would be empowered, under § 6331, to levy upon assets held in petitioner's name in satisfaction of Norman's income tax liability.429 U.S. at 351 (citations omitted). "State law governs the determination of whether there exists an alter ego from whom the government may satisfy the obligation of a taxpayer." Wolfe v. United States, 806 F.2d 1410, 1411 (9th Cir. 1986).
Corporation Sole currently holds title to Parcel 1 and Parcel 2. Thus, to determine whether the Government can levy' upon the property held in Corporation Sole's name, the Court must determine whether Corporation Sole is the alter ego or nominee of the Stocks.
The Stocks have, by failing to respond to the Government's requests for admissions, made the following admissions: (1) that they live on Parcel 1 and do not pay rent for such occupancy; (2) that they are the owners of Parcel 1 and Parcel 2; (3) that all rental income arising from Parcel 1 and Parcel 2 is received by the Stocks; (4) that the Stocks are responsible for paying the expenses associated with Parcel 1 and Parcel 2; (5) that the 1982 Idaho Trust, the Rea B. Stock 1982 Wyoming Trust, the Clyde W. Stock Family Limited Partnership, the Rea B. Stock Trust, the Clyde W. Stock Family Trust, the Tin Cup Trust, the Our Trust One, the Stillwater Management Trust, the Dollar Trust, and Corporation Sole are the alter ego/nominee of Clyde W. Stock and/or Rea B. Stock; (6) that the transfers of Parcel 1 and Parcel 2 were made for little or no consideration; and (7) that the obligation secured by the real estate mortgage on Parcel 1, recorded October 26, 1993, was executed by the Stocks as trustees of both the Tin Cup Trust and the Dollar Trust, was executed with no actual value given, and was executed with the intent to hinder, delay, or defraud the Stocks' present and future creditors. See Decl. David Cheng, Ex. 3 and 6; Fed.R.Civ.P. 36.
In addition to the admissions made by the Stocks, the undisputed facts in the record indicate that these various entities and trusts are alter egos/nominees of the Stocks: the Stocks are the trustees, managers, or partners of almost all of the entities and trusts; almost all of the entities and trusts have the same address as the Stocks; and the only evidence in the record shows that all of the "transfers" between the various entities and trusts were made for little or no consideration.
The Court finds, based on these admissions and the undisputed evidence in the record, that Corporation Sole, which currently holds title to Parcel 1 and Parcel 2, is the alter ego/nominee of the Stocks. The Court further finds, based on the Stocks' admissions and the undisputed evidence in the record, that the Dollar Trust is the alter ego/nominee of the Stocks, that no consideration was given for the mortgage, and that the Dollar Trust's purported interest in Parcel 1 is therefore void.
III. Order
NOW THEREFORE IT IS HEREBY ORDERED that the United State's Motions for Partial Summary Judgment (Docket No. 55) and for Summary Judgment (Docket No. 62) are GRANTED.
IT IS FURTHER ORDERED that Clyde W. Stock and Rea B. Stock are liable, jointly and severally, to the United States in the amount of $278,270.51, as of December 27, 2000, on the assessments made against them for the tax year 1993.
IT IS FURTHER ORDERED that Clyde W. Stock and Rea B. Stock are liable, jointly and severally, to the United States in the amount of $533,052.56, as of December 27, 2000, on the assessments made against them, jointly and severally, for the tax years 1994, 1995, and 1996.
IT IS FURTHER ORDERED that Clyde W. Stock is liable to the United States in the amount of $1,518.31, as of December 27, 2000, on the civil penalty assessments made against him for the tax years 1994, 1995, and 1996.
IT IS FURTHER ORDERED that the United States may foreclose upon the federal tax liens on Parcel 1 and Parcel 2.
IT IS FURTHER ORDERED that the Motions to Withdraw (Docket Nos. 86 and 89) are GRANTED.