USA v. Simpson

Filing 39

OPINION AND ORDER granting 35 Motion for Default Judgment; granting 35 Motion for Summary Judgment; finding as moot 38 Motion to Continue. Signed by Honorable Timothy L. Brooks on October 21, 2014. (rg) Modified on 10/21/2014 to change document type (rg).

IN THE UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF ARKANSAS
FAYETTEVILLE DIVISION

UNITED STATES OF AMERICA
V.

PLAINTIFF

CASE NO. 5:13-CV-05169

CHURCH OF NORTHWEST ARKANSAS,
TODD R. SIMPSON, MELISSA L. SIMPSON,
RICHLYNN ENTERPRISES, LLC, and FIRST
STATE BANK OF NORTHWEST ARKANSAS

DEFENDANTS

OPINION AND ORDER

Currently before the Court is Plaintiff United States of America’s Motion for Default
Judgments against Todd R. Simpson, Melissa L. Simpson, Richlynn Enterprises, LLC, and
First State Bank of Northwest Arkansas, and for Summary Judgment Against The Church
of Northwest Arkansas (Doc. 35), filed on August 29, 2014. There has been no response
to this Motion, and the time for doing so has passed. Also before the Court is the United
States’s Motion to Continue Trial (Doc. 38). Having considered this matter, the United
States’s Motion for Default Judgments and Summary Judgment (Doc. 35) is GRANTED,
and therefore the United States’s Motion to Continue Trial (Doc. 38) is MOOT.
I. BACKGROUND
The United States brings this action to reduce to judgment federal tax assessments
of $1,514,575.35 against Todd R. Simpson, and to foreclose federal tax liens against
approximately five acres of real property located in Washington County, Arkansas (“subject
property”),1 declaring that Todd R. Simpson, Melissa L. Simpson, Richlynn Enterprises,

1

Exhibit A is attached, providing a legal description of the subject property.

LLC (“Richlynn”), and First State Bank of Northwest Arkansas (“First Bank”) do not have
a claim or interest in the subject property that is superior to that of the United States. The
United States also moves for summary judgment against The Church of Northwest
Arkansas (“The Church”), contending that The Church does not have a superior claim in
regard to the subject property. On September 23, 2013, The Church entered into a
consent judgment with the United States in Case No. 5:12-CV-05236, in which The Church
waived all defenses to the United States’s valid federal tax lien. (Doc. 37-2).
The record reflects that all Defendants were personally served. See Docs. 11, 13,
14, 15, and 28. All Defendants’ answers were due 21 days after the date of service. Fed.
R. Civ. P. 12(a)(1)(A). However, Defendants, with the exception of The Church, failed to
answer or otherwise respond to either the United States’s Complaint or subsequent First
Amended Complaint (“Complaint”) and defend themselves in this lawsuit. On December
11, 2013 and June 11, 2014, the United States filed motions for a Clerk's default against
Defendants. The Clerk entered a default as to Mr. Simpson, Ms. Simpson, Richlynn, and
First State, see Docs. 19 and 33, after which the United States filed its Motion for Default
Judgments against Defendants now before the Court.
No Defendant has filed a response to the pending Motion or asserted a claim on the
subject property.
II. LEGAL STANDARD
Rule 55 of the Federal Rules of Civil Procedure provides, in pertinent part, as
follows:
(a) Entering a Default. When a party against whom a judgment for
affirmative relief is sought has failed to plead or otherwise defend, and that
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failure is shown by affidavit or otherwise, the clerk must enter the party's
default.
(b) Entering a Default Judgment.
(1) By the Clerk. If the plaintiff's claim is for a sum certain or a sum that can
be made certain by computation, the clerk—on the plaintiff's request, with an
affidavit showing the amount due—must enter judgment for that amount and
costs against a defendant who has been defaulted for not appearing and
who is neither a minor nor an incompetent person.
(2) By the Court. In all other cases, the party must apply to the court for a
default judgment. . . . The court may conduct hearings or make referrals
—preserving any federal statutory right to a jury trial—when, to enter or
effectuate judgment, it needs to:
(A) conduct an accounting;
(B) determine the amount of damages;
(C) establish the truth of any allegation by evidence; or
(D) investigate any other matter.
Fed. R. Civ. P. 55.
Rule 55 contemplates a two-step process for the entry of default judgments. United
States v. Williamson., 2013 WL 7864735, at *1 (E.D. Ark. Feb. 21, 2013) (citing Fraserside
IP L.L.C. v. Youngtek Solutions Ltd., 796 F.Supp.2d 946, 950–951 (N.D. Iowa 2011)
(citation and internal quotation marks omitted)). First, pursuant to Rule 55(a), the party
seeking a default judgment must have the clerk enter the default by submitting the required
proof that the opposing party has failed to plead or otherwise defend. Id. Second, pursuant
to Rule 55(b), the moving party may seek entry of judgment on the default under either
subdivision (b)(1) or (b)(2) of the rule. Id.

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III. DISCUSSION
A. Request for Default Judgments Against Todd Simpson for Unpaid Federal
Income Taxes, and to Enforce the United States’s Lien on the Subject Property as
to all Defendants
The United States requests that a default judgment be entered against Mr. Simpson
in the amount of $1,514,576.35 for unpaid taxes, fraud penalties, and interest, and for a
default judgment declaring that Mr. Simpson, Ms. Simpson, Richlynn, and First State do
not hold an interest in the subject property. In this case, the Clerk of the Court has entered
a default against Defendants pursuant to Rule 55(a), completing the first in the two-step
process toward default judgment. Thus, the questions presented by the present Motion
are whether the Court should now take the second step and enter default judgments
pursuant to Rule 55(b)(1) and (2).
By virtue of the default, Defendants are deemed to have admitted the truth of the
well-pleaded allegations within the Complaint. Murray v. Lene, 595 F.3d 868, 871 (8th Cir.
2010); Ryan v. Homecomings Fin. Network, 253 F.3d 778, 780 (4th Cir. 2001) (internal
quotation and citation omitted). “Tax assessments made by the IRS are presumed correct
and the taxpayer bears the burden of proving, by a preponderance of the evidence, that
the assessment is erroneous.” N.D. State Univ. v. United States, 255 F.3d 599, 603 (8th
Cir. 2001). The United States has submitted certified IRS Forms 4340 in support of its tax
assessments. See Doc. 37-1. However, Mr. Simpson has not answered or responded to
the suit in order to dispute the validity of the tax assessments against him for unpaid
federal income tax, fraud penalties, and interest for 1999, 2000, 2001, and 2006.

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Further, Courts have entered default judgments that include civil fraud penalties.
See Smith v. C.I.R., 926 F.2d 1470 (6th Cir. 1991) (finding that the tax court properly
entered default judgment granting fraud penalties based exclusively on allegations in the
Commissioner of Internal Revenue's answer to the petitioner’s request for a
redetermination of his tax deficiency). The Complaint alleges that Mr. Simpson created
sham pass-through entities and assigned his personal income and expenses to these
entities, vastly understated pass-through income from his wholly-owned S corporation, did
not report income from the sale of stock, failed to document substantial charitable
contributions and farm expenses, and ceased cooperating with the IRS in the middle of its
investigation. Tax fraud is established when a taxpayer engages in intentional wrongdoing
and has the “specific purpose to evade taxes the taxpayer knows or believes to be owing.”
McGraw v. C.I.R., 384 F.3d 965, 970 (8th Cir. 2004) (citing Day v. Comm'r, 975 F.2d 534,
538 (8th Cir. 1992)). Circumstances that justify civil tax fraud penalties include the sizeable
underreporting of income, concealment of assets or covering up sources of income, and
inadequate record keeping. Id. at 971. (internal citations omitted). The Ninth Circuit also
recognized failing to cooperate with tax authorities and using cash to avoid scrutiny of
finances as additional “badges of fraud.” Id. (citing Bradford v. Comm'r, 796 F.2d 303, 30708 (9th Cir. 1986)).
In addition, Mr. Simpson fails to dispute that federal tax liens attach to the subject
property, that foreclosure is appropriate to satisfy his tax obligations, and that foreclosure
will not affect the interests of any third parties. See In re Nerland Oil, Inc., 303 F.3d 911,
916 (8th Cir. 2002) (under 26 U.S.C. §§ 6321, 6322, a federal lien in favor of United States
attaches at assessment of unpaid taxes upon all property and rights to property, whether
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real or personal, of delinquent taxpayer); United States v. Bierbrauer, 936 F.2d 373, 374
(8th Cir. 1991) (26 U.S.C. § 7403 authorizes a federal district court to order a sale of
property in which a delinquent taxpayer has an interest in order to satisfy the taxpayer's
debt; a district court may do so even though an innocent third party has an interest in the
property, so long as the third party receives compensation).
Under 26 U.S.C. § 7403(b), the United States is required to name “all persons
having liens upon or claiming any interest” in the subject property in a tax lien enforcement
suit. Because it was possible that third parties may have a claim or interest in the subject
property, the United States named Ms. Simpson, Richlynn, and First State as Defendants
in the suit. However, none of these Defendants has asserted a claim as to the subject
property.
Here, the grounds for default are clearly established. Based on the admitted
allegations in the Complaint, the Court finds that federal tax liens arose in favor of the
United States as a result of unpaid federal income tax liabilities against Mr. Simpson for
the tax years of 1999, 2000, 2001, and 2006; and the lien is therefore enforceable against
all Defendants.
Accordingly, the Court grants the United States's Motion for default judgment
against Mr. Simpson in the amount of $1,514,576.35, 2 which includes fraud penalties, as
2

On June 3, 2011, Mr. Simpson was sentenced and ordered to pay $822,321.23 in
restitution to the Internal Revenue Service (“IRS”) in Case No: 5:09-CR-50093 for tax
evasion for several of the tax years also at issue in this case. Where a tax evader is
required to pay restitution for tax loss, the United States may also seek to collect unpaid
taxes, penalties, and interest in a civil proceeding. See Morse v. Comm’r of Internal
Revenue Serv., 419 F.3d 829, 834 (2005) (citing United States v. Helmsley, 941 F.2d 71,
102 (2d Cir. 1991). To the extent that the default judgment here encompasses the
restitution amount Mr. Simpson already paid to the IRS, it must be subtracted from the
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well as statutory interest accruing through August 26, 2014, and orders that the federal tax
liens on the subject property be foreclosed.
B. Summary Judgment as to The Church of Northwest Arkansas
The Church, through its Stipulation and Consent Judgment (Doc. 37-2), filed on
September 23, 2014, concedes that the United States holds a superior lien on the subject
property, and waives all defenses to the enforcement of that lien.
Under Federal Rule of Civil Procedure 56(a), “[t]he court shall grant summary
judgment if the movant shows that there is no genuine dispute as to any material fact and
the movant is entitled to judgment as a matter of law.” The Court must review the facts in
the light most favorable to the opposing party and give that party the benefit of any
inferences that logically can be drawn from those facts. Canada v. Union Elec. Co., 135
F.3d 1211, 1212–13 (8th Cir. 1998).
Here, there is no opposition to the Motion for Summary Judgment. Because the
parties are in agreement regarding the United States’s lien, no genuine dispute of material
fact remains as to whether the United States holds a superior claim as to the subject
property. Therefore, it is appropriate to grant summary judgment in favor of the United
States.
IV. CONCLUSION
IT IS THEREFORE ORDERED that Plaintiff United States of America’ s Motion for
Default Judgments against Todd R. Simpson, Melissa L. Simpson, Richlynn Enterprises,

amount Mr. Simpson owes.
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