WALLACE CAPEL, Jr., Magistrate Judge.
Before the court is Plaintiff's "Motion for Default Judgment of Permanent Injunction and Request for Hearing" (Doc. 56), "Emergency Motion for Order to Show Cause Why Default Judgment of Permanent Injunction Should Not be Entered and Request for a Hearing" (Doc. 45), "Motion for Default Judgment" (Doc. 36), and no fewer than six affidavits and declarations filed in support of said motions. The District Judge referred this case to the undersigned Magistrate Judge "for consideration and disposition or recommendation on all pretrial matters as may be appropriate." Order (Doc. 28). Upon review of the motions for default judgment and accompanying affidavits and declarations, the undersigned finds that a hearing is not necessary and recommends that the motions for default judgment of permanent injunction be GRANTED and that default judgment of permanent injunction be entered against Defendants.
Plaintiff brought this action for injunctive relief, pursuant to 26 U.S.C. §§ 7402, 7407, and 7408, against Ms. Laquanda Gilmore ("Ms. Gilmore") and L&g Associates, an Alabama limited liability company that, since 2011, has been owned by Ms. Gilmore as a tax preparation company. Compl. (Doc. 1) at 1-3. The complaint sought to
enjoin the Defendants, and anyone in active concert or participation with them, from:
Compl. (Doc. 1) at 1-2.
Plaintiff alleges that, "since 2009, Ms. Gilmore has continuously and routinely claimed bogus fuel-tax credits and earned-income tax credits on tax returns she prepared for her customers[,] . . . caus[ing] her customers to overstate their refund claims or otherwise underreport their income-tax liabilities." Id. at 3. Further, since 2011, Ms. Gilmore has prepared said returns "in association with her own company, L&g Associates." Id. Plaintiff alleges that this conduct "has harmed the United States by causing [Defendants'] customers to claim credits that they are ineligible to claim," and "[t]he IRS estimates that, [at the time the complaint was filed], the administrative cost of investigating Ms. Gilmore's activities exceed[ed] $50,000." Id.
L&g Associates was served with the Complaint on May 27, 2014. Return Receipt Card (Doc. 3). After the summons was returned unexecuted at Ms. Gilmore's address (see Doc. 4), a Waiver of Service was executed on June 14, 2014, by Ms. Gilmore's first attorney.
The court first learned of Defendants' failure to satisfy their discovery obligations on May 26, 2015, when Plaintiff moved to extend its time for discovery by sixty days based on Defendants' "fail[ure] to produce numerous documents that are responsive to the United States' document requests." Mot. for Extension (Doc. 29) at 2. According to the Motion, when Plaintiff notified Defendants of the missing documents, Defendants "represented that they erroneously omitted . . . and that they will make those documents available for [Plaintiff] to review and copy." Id. The court granted the motion for extension to the extent that the parties were allotted thirty additional days to conduct discovery. Order (Doc. 30) at 1.
Three weeks later, on June 19, 2015, Plaintiff filed a Motion to Compel (Doc. 31), wherein Plaintiff reported as follows:
Mot. to Compel (Doc. 31) at 3-4 (internal citations and footnotes omitted).
The court granted the motion to compel and ordered Defendants to "on or before June 29, 2015, produce all documents responsive to [Plaintiff's] request for production of documents, including all tax returns that Defendants prepared for the tax years 2011-2014 which claimed an earned-income credit, a fuel-tax credit, or an educational-expense credit."
Less than two weeks later, on June 29, 2015, the court learned that Defendants' failure to comply with their discovery obligations continued when Plaintiff filed a Motion for Sanctions against Ms. Gilmore for her failure to appear at her deposition. Mot. for Sanctions (Doc. 35) at 1-8. In that Motion, Plaintiff explained as follows:
Id. at 2-4 (internal citation omitted).
The next week, on July 8, 2015, Plaintiff filed its first Motion for Default Judgment (Doc. 36), based on Defendants' violation of the court's order compelling Defendants to produce documents, Ms. Gilmore's failure to appear at her deposition, and Defendants' "fail[ure] to respond to document requests that [Plaintiff] served on May 28, 2015." Mot. for Default (Doc. 36) at 1. Specifically, Plaintiff alleged that
Id. at 6-8 (internal citations omitted). Accordingly, Plaintiff requested the court, pursuant to Rule 37(b)(2)(A) of the Federal Rules of Civil Procedure, issue default judgment of permanent injunction against Defendants for their failure to comply with the court's June 22, 2015, order and their discovery obligations. Id. at 8.
The court set the motion for sanctions and motion for default judgment for hearing and ordered Defendants to "on or before
Id. at 2 (emphasis in original).
Defendants failed to file any response to the court's order to show cause. At the hearing held on July 22, 2015, Plaintiff's counsel reviewed the lengthy history of Defendants failing to comply with their discovery obligations and the court's prior order. See Mins. (Doc. 40). Ms. Gilmore claimed she had been unable to attend her deposition or comply with the court's order based on some personal or marital issues she was experiencing. The court later issued two written orders to reflect the rulings made at the hearing. See Orders (Docs. 42 & 43). First, the court granted Plaintiff's Motion for Sanctions (Doc. 35) based on Ms. Gilmore's failure to show at her first properly noticed deposition, ordering as follows:
It is, therefore
Order (Doc. 42) at 1-2. Second, the court gave Defendants another chance to comply with the discovery orders prior to recommending default judgment and ordered as follows:
Order (Doc. 43) at 1-2. The same day as the court's issuance of these two written orders summarizing the rulings made at the hearing, Ms. Gilmore called the undersigned's Chambers to report that the power to her office had been disconnected and would not be restored until Monday, July 27, 2015. See Order (Doc. 44) at 1. Accordingly, the court extended Defendants' deadline to turn over the documents discussed above, and ordered that the documents be delivered by 5:00 p.m. on Monday, July 27, 2015.
On July 31, 2015, one week following the issuance of the court's orders for Ms. Gilmore to pay sanctions, attend a deposition, and turn over documents (Docs. 42, 43, & 44), Plaintiff filed its second motion for default judgment, titled "Emergency Motion for Order to Show Cause why Default Judgment of Permanent Injunction Should Not be Entered and Request for a Hearing." Mot. (Doc. 45) at 1-13. This motion, and supporting affidavits (Docs. 46, 47), notified the court that, despite the additional time allotted based on Ms. Gilmore's representations regarding the lack of power at her office, Defendants had failed to produce the tax returns for years 2011-2014, in violation of the court's July 24, 2015, order (Doc. 44). Id. at 1.
The court set the motion for a hearing to be held on August 6, 2015, and ordered Defendants to "bring to the hearing
In summary, Defendants were to show up at the August 6 hearing having (1) paid the sanctions imposed against them, (2) attended Ms. Gilmore's properly noticed deposition that morning as ordered by the court, and (3) brought paper copies of the tax returns previously sought by Plaintiff.
At some point around this time, Ms. Gilmore again called the undersigned's Chambers to request additional time to pay the sanctions issued against her for her failure to attend her first deposition. At that time, the undersigned's staff made clear to Ms. Gilmore that any relief she seeks from the court must come in the form of a written motion properly filed with the Clerk of Court and placed on the record. On August 5, 2015,
On August 6, 2015, the court held the hearing on Plaintiff's second motion for default (Doc. 45). At the hearing, the court learned that Ms. Gilmore had not paid the sanctions previously assessed against her, had not shown for her deposition, and had not brought any paper documents to be turned over to Plaintiff. However, Defendants had retained new counsel, Mr. Alfred Norris, who attended the hearing. At the hearing, the undersigned summarized Defendants' repeated misconduct, as set forth above. Mr. Norris explained that Ms. Gilmore was in the middle of a divorce that was negatively affecting her professionally, financially, and emotionally, which was why Ms. Gilmore had been uncooperative through the pendency of this case. Finding instead that Ms. Gilmore's misconduct throughout this case was both willful and in bad faith, the court ordered Defendants to produce copies of tax returns for the years 2011-2014 by the close of business that day,
Following the hearing, the court issued a written order finding that "Defendants have willfully and intentionally attempted to evade their discovery obligations in this case." Order (Doc. 57) at 2. Further, the court found "that Ms. Gilmore has willfully and intentionally violated at least five of this court's orders." Id. Accordingly, the court ordered
Plaintiff again notified the court of problems with Defendants when it filed its third Motion for Default Judgment (Doc. 56), asserting that Defendants failed to comply with the court's August 6th Order that the tax return documents be produced by close of business that day. Plaintiff claimed that, "[o]n the morning of August 7, 2015, Ms. Gilmore delivered a flash drive . . . to the United States Attorney's Office for the Middle District of Alabama," but that "[u]pon inspection of the flash drive," Plaintiff learned that, while it did contain some documents, it did not contain any tax returns. Mot. (Doc. 56) at 2.
On August 17, 2015, Plaintiff notified the court that, although August 14 had come and gone, Defendants had not paid the sanctions ordered in the court's August 12, 2015, Order. Dec. (Doc. 59) at 1. Defendants also failed to pay the ordered sanctions to the court by August 14. In fact, to date, Defendants have not paid any sanctions imposed against them.
Citing the continued misconduct by Defendants, Plaintiff has also filed a Motion for Contempt (Doc. 66) and a Motion for Sanctions (Doc. 67).
Pursuant to Federal Rule of Civil Procedure 37(b)(2)(A), Plaintiff seeks an order striking Defendants' answers and granting it default judgment that permanently bars Defendants from preparing tax returns for others. Pl.'s Mot. (Doc. 56) at 8, 17. Rule 37 authorizes the court to impose any just sanction against a party that violates an order to provide or permit discovery. Fed. R. Civ. P. 37(b)(2)(A). The rule's specific list of possible sanctions includes an order "striking pleadings in whole or in part" or an order "rendering a default judgment against the disobedient party." Fed. R. Civ. P. 37(b)(2)(A)(iii), (vi). "`[D]istrict courts enjoy substantial discretion in deciding whether and how to impose sanctions under Rule 37.'" J.B. Hunt Transp., Inc. v. S & D Transp., Inc., 589 F. App'x 930, 933 (11th Cir. 2014) (quoting Chudasama, 123 F.3d at 1366).
United States v. Certain Real Prop. Located at Route 1, Bryant, Ala., 126 F.3d 1314, 1317 (11th Cir. 1997). Rule 37 does not, however, "require the vain gesture of first imposing [other] ineffective lesser sanctions." Malautea v. Suzuki Motor Co., 987 F.2d 1536, 1544 (11th Cir. 1993).
The severe sanction of default judgment is appropriate in this case because Defendants conduct has clearly been willful and in bad faith. Defendants willfully chose not to meaningfully cooperate in discovery, not to comply with court orders, and not to participate in this litigation with any consistency. If not evidenced by the sheer number of times Defendants have utterly failed to do as the court ordered, their bad faith is certainly evidenced by Ms. Gilmore's inability to keep straight the excuses she has presented to the court. As just one example, the court would point to when Ms. Gilmore sought an extension of time to provide a jump drive of documents to Plaintiff because the power at her office had been disconnected and would not be reconnected for a few additional days. See Order (Doc. 44) at 1. Yet, on the final date of the extended time, Ms. Gilmore turned over an entirely blank jump drive to Plaintiff. See Affs. (Docs. 46 & 47). At one point, Plaintiff asserted that she had "attempted in good faith to comply by putting the requested files on a flash drive" and that the blank jump drive was "due to a good faith error and without her knowledge." Mot. for Extension (Doc. 51) at 2. However, Ms. Gilmore came into court days later and represented (1) that the power was still shut off at her office and (2) that she had never thought of the idea of taking her office computer to her home or another location with power to access the files. If both of Ms. Gilmore's assertions to the court at the hearing were true, then Ms. Gilmore must have intentionally and willfully turned over a jump drive to Plaintiff knowing it was blank in spite of the court's July 24th order (Doc. 44) that she provide Plaintiff with discovery documents.
Additionally, it is abundantly clear that a less drastic sanction will not suffice to ensure Defendants comply with the courts orders or the judicial process. In fact, as is thoroughly set forth above, the court has already attempted to urge Defendants' compliance through less drastic sanctions. Defendants' repeated defiance, refusal to comply with court orders, and refusal to pay the financial sanctions previously imposed as a lesser sanction are evidence of the futility of imposing lesser sanctions.
Accordingly, the undersigned finds that striking Defendants' answers and granting default judgment are the most appropriate sanctions in this case and recommends that the motions seeking default judgment be granted.
Because the complaint in this case seeks a permanent injunction, this court is bound by the provision of Rule 65 of the Federal Rules of Civil Procedure. Rule 65(d) requires that "[e]very order granting an injunction" must "state the reasons why it issued," "state its terms specifically," and "describe in reasonable detail . . . the act or acts restrained or required."
Because this injunction will result from default judgment, it is important to note that "[a] defaulted defendant is deemed to `admit[] the plaintiff's well-pleaded allegations of fact.'" United States v. Ruetz, 334 F. App'x 294, 295 (11th Cir. 2009) (quoting Nishimatsu Constr. Co., Ltd. v. Houston Nat'l Bank, 515 F.2d 1200, 1206 (5th Cir. 1975)); see also Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th Cir.1981) (en banc) (adopting as binding precedent all of the decisions of the former Fifth Circuit handed down prior to October 1, 1981).
In this case, Plaintiff seeks a default judgment for permanent injunction pursuant to 26 U.S.C. §§ 7402(a), 7407, and 7408. The court will consider each separately below. First, for the court to issue an injunction pursuant to § 7407,
United States v. Ernst & Whinney, 735 F.2d 1296, 1303 (11th Cir. 1984).
Here, Plaintiff pleaded that "[Ms.] Gilmore is a tax-return preparer," and "since 2011, Ms. Gilmore has prepared [tax] returns in association with her own company, L&g Associates." Compl. (Doc. 1) at 2-3. Additionally, Plaintiff pleaded, "Ms. Gilmore has continuously and routinely claimed bogus fuel-tax credits and earned-income tax credits on tax returns she prepared for her customers. By doing this, Ms. Gilmore causes her customers to overstate their refund claims or otherwise underreport their income-tax liabilities." Id. at 3. Deeming these well-pleaded facts as true, the court finds that an injunction is appropriate to prevent the recurrence of Defendants understating taxpayer's liability on tax returns because, in large part, there is simply nothing before the court to indicate that Defendants have any interest in abiding by the IRS laws or preparing honest tax returns, just as Defendants have no interest in abiding by orders of this court.
Section 7408 authorizes a district court to enjoin any person from engaging in specified conduct, including that subject to penalty under § 6701, if injunctive relief is appropriate to prevent recurrence of that conduct. 26 U.S.C. § 7408(b)-(c). Section 6701 prohibits any person from aiding or assisting in, procuring, or advising with respect to, the preparation or presentation of a tax return, affidavit, claim, or any other document, knowing (or having reason to believe) that such portion will be used in connection with any material matter arising under the internal revenue laws, and knowing that such portion, if used, will result in an understatement of the tax liability of another person. 26 U.S.C. § 6701(a)(1)-(3).
Here, Plaintiff pleaded, "Ms. Gilmore has prepared tax returns that she knew contained improper deductions and credits and that she knew would understate her customer's tax liabilities," which is conduct subject to penalty under § 6701. Compl. (Doc 1) at 15-16. Deeming these well-pleaded facts as true, the undersigned finds that injunctive relief is appropriate to prevent the recurrence of that conduct, as Defendants will likely continue to engage in such conduct absent an injunction.
Section 7402 authorizes a district court to issue injunctions "as may be necessary or appropriate for the enforcement of the internal revenue laws." 26 U.S.C. § 7402(a). For an injunction under § 7402(a), the Eleventh Circuit requires a showing that (1) it is likely that Plaintiff will suffer irreparable injury if Defendants' conduct continues; (2) remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) it is unlikely that Defendants will be harmed by the injunction; and (4) an injunction will serve the public interest. Ernst & Whinney, 735 F.2d at 1301 ("[T]he decision to issue an injunction under § 7402(a) is governed by the traditional factors shaping the district court's use of the equitable remedy."); see eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 391 (2006) (listing the traditional factors); see also United States v. Demesmin, No. 6:14-CV-1537-ORL-22, 2015 WL 737056, at *4 (M.D. Fla. Jan. 15, 2015).
Here, Plaintiff pleaded that, if Defendants are "not enjoined from engaging in fraudulent and deceptive conduct, [Plaintiff] will suffer irreparable injury by wrongfully providing federal income-tax refunds to individuals who are not entitled to receive them" and that Defendants "will not suffer irreparable harm because the injunction sought will merely enjoin [Defendants] from engaging in illegal conduct." Compl. (Doc. 1) at 16-17. Additionally, monetary damages would not be an adequate remedy at law. This is evidenced, in part, by Defendants failure to pay monetary sanctions previously ordered by the court. Lastly, Plaintiff pleaded that "enjoining [Defendants] is in the public interest because an injunction, backed by the Court's contempt powers if needed, will stop [Defendants'] illegal conduct and the harm she causes the United States." Id. at 17. Accordingly, deeming these well-pleaded facts as true, the undersigned finds that all four factors considered weigh in favor of injunctive relief, which is necessary and appropriate for the enforcement of the internal revenue laws and to prevent the recurrence of Defendants' illegal conduct.
For the reasons stated above, it is the RECOMMENDATION of the Magistrate Judge
(1) that the "United States' Motion for Default Judgment of Permanent Injunction and Request for Hearing" (Doc. 56), "Emergency Motion for Order to Show Cause Why Default Judgment of Permanent Injunction Should Not be Entered and Request for a Hearing" (Doc. 45), and "Motion for Default Judgment" (Doc. 36) be GRANTED;
(2) that default judgment be entered against Defendants;
(3) that pursuant to 26 U.S.C. §§ 7402(a), 7407, and 7408, a permanent injunction be entered against Defendants, enjoining the Defendants, and anyone in active concert or participation with them, from:
(4) that all pending motions, including the Motion for Contempt (Doc. 66) and Motion for Sanctions (Doc. 67), be DENIED as moot based on the default judgment and permanent injunction.
It is further
ORDERED that the parties are DIRECTED to file any objections to the said Recommendation on or before
