ROSANNA MALOUF PETERSON, Chief District Judge.
BEFORE THE COURT is the United States' Motion for a Preliminary Injunction, ECF No. 32. This Court has reviewed the record, the pleadings contained therein, and is fully informed.
The United States filed its First Amended Complaint in this action on June 16, 2015, seeking a permanent injunction against Defendants that would require them to adhere to federal tax laws by timely filing employment tax returns, timely paying the Internal Revenue Service (IRS) federal employment taxes, and not assigning or transferring any property until Defendants pay the taxes that they have withheld from employees' paychecks. See ECF No. 17 at 2. The Government alleges that Defendants own and operate a number of business entities with employees which requires them to submit documentation and withhold and pay federal income taxes, Federal Insurance Contribution Act (FICA) taxes, and Federal Unemployment Tax Act (FUTA) excises related to their employees' wages. Id. at 8-10. The Government argues that the entities run by Defendants, including, among others, Dental Care Associates of Spokane Valley, P.S.; Dr. James G. Hood Family Dentistry; Dr. James G. Hood, D.D.S., P.S.; Hood Family Trust; and Whispering Pine Press Inc., have avoided such tax obligations since 2001 and continue to do so. See generally ECF No. 17.
According to the Government, the IRS has conferred with Defendants on numerous occasions, notified them of their liabilities, and has sought compliance through a variety of means prior to initiating this suit. Id. at 19; see also ECF No. 32 at 4-6. The IRS states that it has issued warnings, sought levies, and pursued administrative action to force Defendants to adhere to their tax obligations. See ECF No. 17 at 19-21, See also ECF No. 32 at 4-6. Defendants, however, continue to avoid paying necessary taxes and continue to open new business entities seemingly to avoid the oversight of the IRS. The Government found 52 businesses listed under their names. See ECF Nos. 17 at 19. In doing so, Defendants have accrued more than $700,000 in taxes owed to the IRS, according to IRS records, and that debt continues to rise. See ECF No. 32 at 2. During the pendency of this litigation, the United States seeks a preliminary injunction:
Id. at 1-2.
A preliminary injunction is "an extraordinary and drastic remedy, one that should not be granted unless the movant, by a clear showing, carries the burden of persuasion" (emphasis in original). Lopez v. Brewer, 680 F.3d 1068, 1072 (9th Cir. 2012) (citing Mazurek v. Armstrong, 520 U.S. 968, 972, 117 S.Ct. 1865, 138 L.Ed.2d 162 (1997) (per curiam)). Ordinarily, to obtain a preliminary injunction, the moving party must "demonstrate that (1) he is likely to succeed on the merits of such a claim; (2) he is likely to suffer irreparable harm in the absence of preliminary relief; (3) the balance of equities tips in his favor; and (4) that an injunction is in the public interest." Lopez, 680 F.3d at 1072 (citing Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 20, 129 S.Ct. 365, 172 L.Ed.2d 249 (2008)).
In this case, the United States is seeking an injunction pursuant to 26 U.S.C. § 7402 which states in relevant part:
Although the Ninth Circuit Court of Appeals has not yet determined whether the traditional equitable factors must also be met to issue a preliminary injunction,
"To establish a substantial likelihood of success on the merits, [the moving party] must show `a fair chance of success.'" In re Focus Media Inc., 387 F.3d 1077, 1086 (9th Cir. 2004) (quoting Republic of the Philippines v. Marcos, 862 F.2d 1355, 1362 (9th Cir.1988) (en banc)). The United States has submitted substantial reliable evidence supporting its claim that Defendants have failed to pay their taxes. See e.g., ECF Nos. 33-34. For example, the Government submitted Certificates of Assessment and Payment that demonstrate the proper assessment, notice, and demand for taxes made by a representative of the Secretary of the Treasury. ECF No. 32 at 9. In response, Defendants have not submitted any viable legal arguments or defenses; they instead vaguely dispute the amounts owed, detail their failed attempts at compliance, and submit details regarding personal difficulties. See ECF Nos. 38-48. In light of the substantial evidence supporting the United States' claims, and in the absence of any viable defenses or evidence to counter the same, this Court finds that the United States is sufficiently likely to succeed on the merits of this litigation.
The United States argues that Defendants continue to add to the significant tax debt that they already have accrued, and absent an injunction, the public will be forced to fund their business endeavors while they ignore their growing tax liabilities. See ECF No. 32 at 9-10. Defendants fail to provide any evidence to the contrary. See ECF Nos. 38-48.
As the alleged debt increases to an extent that Defendants may not be able to pay and insofar as they continue to maintain business entities, this Court agrees with the Government that under a preponderance of the evidence standard, it is likely that irreparable harm would result if Defendants' conduct is not enjoined.
The Government argues that the balance of equities weigh heavily in its favor because it is simply requesting that Defendants be forced to comply with the law. See ECF No. 32 at 9. As the Court in United States v. Campbell, 897 F.2d 1317, 1324 (5th Cir. 1990) (citing Dunlop v. Davis, 524 F.2d 1278 (5th Cir.1975)) held in dealing with a permanent injunction: "[a] permanent injunction against future violations of a statute is permitted because such merely requires the enjoined party to obey the law."
Any hardships than an injunction would impose on Defendants would already have arisen under relevant statutes, but absent an injunction, the United States would continue to lose the benefits of obtaining tax revenues owed by Defendants. Defendants address this factor with numerous repetitive declarations that detail attempts to satisfy debts and that restate personal difficulties regarding their family life. See ECF Nos. 38-48. Although the Court recognizes the severity of Defendants' personal hardships, the burden of complying with statutory obligations is not dissipated by the presence of unfortunate or even tragic circumstances. Accordingly, this Court finds that the balance of equities weighs in favor of granting the requested preliminary injunction.
According to the Government, the public is currently funding Defendants' business entities, and the effect of Defendants' ability to avoid taxes is serving as a de facto subsidy of their businesses, supporting them against their law-abiding and tax-paying competitors. See ECF No. 17 at 25-36, see also ECF No. 32 at 10. Defendants do not provide any reason to believe that the public has an interest that would be harmed by the requested preliminary injunction. See ECF Nos. 38-48. Accordingly, the Government has met its burden of establishing by a preponderance of the evidence that an injunction is in the public interest.
The Government argues that an injunction is proper in this case pursuant to 26 U.S.C. § 7402 because "it is necessary or appropriate for the enforcement of the internal revenue laws." ECF No. 32 at 7-8. The Government states that Defendants have failed to comply with their tax obligations after the Government sought compliance through administrative actions and other means prior to this litigation, but nothing sufficed to ensure that Defendants paid their taxes. ECF No. 17 at 19, See also ECF No. 32 at 4-6, 24-26. Therefore, an injunction would be the only adequate remedy to prevent Defendants from adding to their debt and finding ways to avoid paying what they already owe. Defendants' vague requests for "due process" without any argument that would refute the Government's assertion that an injunction is necessary and appropriate are unpersuasive. See ECF Nos. 38-48. In the absence of any contradicting evidence, the Government has proven by a preponderance of the evidence that an injunction is necessary and appropriate to ensure Defendants' compliance with tax laws.
In light of the foregoing considerations, this Court finds that the requisite conditions under 26 U.S.C. § 7402 are satisfied and all four of the traditional equitable factors favor the entering of a preliminary injunction pending the outcome of this case.
Accordingly,
The District Court Clerk is directed to enter this Order and provide copies to counsel and to pro se Defendants.
