United States of America v. Reed

Filing 21

ORDER GRANTING MOTION FOR DEFAULT JUDGMENT ***Civil Case Terminated.Signed by Judge Richard Seeborg on 4/15/11. (cl, COURT STAFF) (Filed on 4/15/2011)

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*E-Filed 4/15/11*

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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SAN FRANCISCO DIVISION

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For the Northern District of California

United States District Court

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Plaintiff,

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No. C 10-4676 RS

UNITED STATES OF AMERICA,

ORDER GRANTING MOTION FOR
DEFAULT JUDGMENT

v.
DARRELL REED individually and dba
STATIONARY SCAFFOLD,

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Defendant.
___________________________________/

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I. BACKGROUND

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Plaintiff United States of America filed suit against defendant Darrell Reed individually and

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as the sole proprietor of Stationary Scaffold, a construction equipment rental business. The

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government seeks to reduce to judgment taxes owned by Reed as an employer and as an individual.

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After Reed failed to answer the complaint or otherwise make an appearance in the case, default was

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entered by the Clerk of Court. The government subsequently filed this motion for entry of default

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judgment. Although Reed was served with notice of the hearing held on March 31, 2011, he did not

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respond to the motion or appear at the hearing. For the reasons stated below, the government’s

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motion for entry of judgment is granted.

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As an employer, Reed is required to withhold federal income taxes and Federal Insurance

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Contributions Act (FICA) taxes from his employees’ wages. See 26 U.S.C. §§ 3102, 3402. He

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must also pay his own portion of FICA taxes and Federal Unemployment Tax Act (FUTA) taxes.

NO. C 10-04676 RS
ORDER GRANTING MOTION FOR DEFAULT JUDGMENT

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§§ 3111, 3301. Along with these obligations, Reed is required to file: (1) Employer’s Quarterly

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Federal Tax Returns (Form 941) reporting the income and FICA taxes withheld from his

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employees’ wages, as well as his own FICA taxes; and (2) Employer’s Annual Federal

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Unemployment Tax Returns (Form 940) reporting FUTA taxes. §§ 6011, 6071.

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According to the complaint, Reed filed Forms 941 and Forms 940, but at times failed to pay

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the total amounts described within those returns. In particular, he owes payroll taxes for the tax

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quarters ending September 30, 2001, June 30, 2004, September 30, 2004, December 31, 2004, and

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December 31, 2007 and for the full tax years of 2005, 2008, and 2009. He owes FUTA taxes for the

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2008 tax year. Additionally, Reed has not paid individual income tax on his self-employment

For the Northern District of California

United States District Court

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income for the past twelve years. In 2008 and 2009, Reed failed even to file his Individual Income

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Tax Returns Forms 1040.

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As of the date of the complaint, the Internal Revenue Service has assessed FICA taxes owed

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by Reed through March 31, 2009, FUTA taxes for 2008, and income taxes for the tax years 1999

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through 2007. The amount due as of September 27, 2010, with assessed interest and penalties,

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includes $219,655.36 for FICA and FUTA taxes and $333,540.75 for income taxes. By declaration

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filed with its motion for default judgment, the United States submitted evidence that the sum

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outstanding as of February 28, 2011, including unassessed interest and penalties, now amounts to

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$225,986.00 in payroll taxes and $338,891.61 in income taxes. Accordingly, the government seeks

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entry of judgment in the total amount of $564,877.61.

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II. DISCUSSION
Following entry of default, a district court may in its discretion grant default judgment. See

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Fed. R. Civ. P. 55; Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980). In exercising its

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discretion, the court considers the following factors: (1) the possibility of prejudice to the plaintiff;

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(2) the merits of the plaintiff’s substantive claim; (3) the sufficiency of the complaint; (4) the sum of

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money at stake in the action; (5) the possibility of dispute concerning material facts; (6) whether the

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default was due to excusable neglect; and (7) the strong policy underlying the Federal Rules of Civil

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Procedure favoring decisions on the merits. See Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir.

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1986). In determining whether to grant default judgment, all factual allegations in the plaintiff’s
NO. C 10-04676 RS
ORDER GRANTING MOTION FOR DEFAULT JUDGMENT

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complaint are taken as true, except for those related to damages. See TeleVideo Systems, Inc. v.

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Heidenthal, 826 F.2d 915, 917-18 (9th Cir. 1987).

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In this case, the Eitel factors strongly weigh in favor of entering default judgment. Reed has

States is apparently otherwise unable to collect the taxes owed, denial of default judgment risks

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continuing losses and thus prejudice to the plaintiff. The merits of the government’s suit and the

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adequacy of its complaint are well established, as the amounts presently assessed by the IRS are

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based on tax forms filed by Reed. For the same reason, the material facts of the case do not appear

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reasonably subject to dispute. Although a relatively large sum of money is involved, it represents

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For the Northern District of California

failed to pay taxes, either fully or in part, over a span of years longer than a decade. As the United

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United States District Court

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liabilities accrued by Reed both as an employer and as an individual over multiple tax years. With

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respect to the possibility of excusable neglect, the United States filed its complaint on January 3,

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2011 and Reed’s answer was due on January 24, 2011. Although he was served with the motion for

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entry of default judgment, Reed has made no appearance in the case. Finally, while resolution on

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the merits is preferable, the length of this tax controversy and Reed’s failure to appear in the case

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suggest that resolution on the merits represents a highly unlikely outcome. In sum, the United

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States has demonstrated that it is entitled to entry of default judgment.

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III. CONCLUSION

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The United States’ motion for entry of default judgment against Reed in the amount of

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$564,877.61 is granted.

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IT IS SO ORDERED.

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Dated: 4/15/11
RICHARD SEEBORG
UNITED STATES DISTRICT JUDGE

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NO. C 10-04676 RS
ORDER GRANTING MOTION FOR DEFAULT JUDGMENT

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