USA v. Bauer et al

Filing 30

ORDER by Chief Judge Philip A. Brimmer on 9/30/2019, re: 27 United States' Motion for Default Judgment Against Kyle L. Bauer is DENIED without prejudice. ORDERED that the Clerk's entry of default, Docket No. 18, is set asid e. ORDERED that plaintiff shall have one hundred days, from the date of this order, to effectuate proper service under Fed. R. Civ. P. 4. ORDERED that, within ten days of this order, plaintiff shall file a motion requesting appropriate service under Fed. R. Civ. P. 4 and Colo. R. Civ. P. 4.(sphil, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Chief Judge Philip A. Brimmer
Civil Action No. 18-cv-00034-PAB-NRN
UNITED STATES OF AMERICA,
Plaintiff,
v.
KYLE L. BAUER and
COLORADO DEPARTMENT OF REVENUE,
Defendants.

ORDER

This matter is before the Court on the United States’ Motion for Default
Judgment Against Kyle L. Bauer [Docket No. 27].
I. BACKGROUND
Because of the Clerk of Court’s entry of default, Docket No. 18, the allegations in
plaintiff’s complaint, Docket No. 1, are deemed admitted. Olcott v. Del. Flood Co., 327
F.3d 1115, 1125 (10th Cir. 2003). The United States brings this lawsuit to reduce to
judgment federal tax liabilities assessed against defendant Kyle Bauer (“Bauer”) and to
foreclose federal tax liens on Bauer’s property, located at 749 and 751 E. 8th Street,
Akron, Colorado 80720. Docket No. 1 at 1, ¶ 1.
During the time periods relevant to this case, Bauer conducted business under
the name of Bauer Construction, a sole proprietorship. Id. at 3, ¶ 11. Based on
Bauer’s failure to file (a) a Form 1040 Individual Income Tax Return for the tax year
ending on December 31, 2002, (b) a Form 941 Employer’s Quarterly Federal Tax

Return on behalf of Bauer Construction for the quarterly tax periods ending on
December 31, 2006 and March 31, 2007, and (c) a Form 940 Employer’s Annual
Federal Unemployment (FUTA) Tax Return on behalf of Bauer Construction for the tax
year ending on December 31, 2006, a duly authorized delegate of the Secretary of the
Treasury made assessments against Bauer for the unpaid tax liabilities. Id. at 3-4,
¶¶ 13-20; see also Docket No. 28 at 2-3, ¶¶ 4, 6-8. According to the assessments,
Bauer owes $65,255.64 in unpaid taxes, penalties, and interest. Docket No. 1 at 4-5,
¶ 21.
Plaintiff filed this lawsuit on January 5, 2018. Docket No. 1. Count One of the
complaint seeks to reduce to judgment the unpaid federal income tax assessments
made against Bauer. Id. at 5-6, ¶¶ 22-23. Count Two requests a judgment against
Bauer based on the unpaid federal employment tax assessments. Id. at 6, ¶¶ 24-25.
Count Three seeks to foreclose federal tax liens on Bauer’s property and requests a
decree of sale pursuant to 26 U.S.C. § 7403(c). Id. at 6-7, ¶¶ 26-32.
On March 30, 2018, plaintiff filed a Motion to Extend Time for Service and to
Serve By Publication [Docket No. 9], wherein plaintiff stated that it had been unable to
locate and serve Bauer despite diligent efforts and requested leave to serve Bauer by
publication pursuant to Fed. R. Civ. P. 4(e)(1) and Colo. R. Civ. P. 4(g). Docket No. 9
at 4-5. On April 2, 2018, the magistrate judge granted the motion. Docket No. 11. In
addition to requiring service by publication, the magistrate judge ordered plaintiff to mail
a copy of the complaint and summons to Bauer at 751 E. 8th Street, Akron CO 80720.
Docket No. 11 at 2. On May 24, 2018, plaintiff filed proof of publication and a
declaration verifying that plaintiff had mailed a copy of the complaint and summons to
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Bauer’s properties at 749 and 751 E. 8th Street. See Docket Nos. 14, 15. After Bauer
failed to appear in this action, plaintiff moved for entry of default under Fed. R. Civ. P.
55(a). Docket No. 16. The Clerk of Court entered default on June 15, 2018, Docket
No. 18, and on October 22, 2018, plaintif f filed a motion for default judgment under Fed.
R. Civ. P. 55(b). Docket No. 27.
II. LEGAL STANDARD
In order to obtain a judgment by default, a party must follow the two-step process
described in Fed. R. Civ. P. 55. First, the party must seek an entry of default from the
Clerk of the Court under Rule 55(a). Second, after default has been entered by the
Clerk, the party must seek judgment under the strictures of Rule 55(b). See Williams v.
Smithson, 57 F.3d 1081, 1995 W L 365988, at *1 (10th Cir. June 20, 1995) (unpublished
table decision) (citing Meehan v. Snow, 652 F.2d 274, 276 (2d Cir. 1981)).
The decision to enter default judgment is “committed to the district court’s sound
discretion.” Olcott, 327 F.3d at 1124 (citation omitted). In exercising that discretion, the
Court considers that “[s]trong policies favor resolution of disputes on their merits.”
Ruplinger v. Rains, 946 F.2d 731, 732 (10th Cir. 1991) (quotation and citations
omitted). “The default judgment must normally be viewed as available only when the
adversary process has been halted because of an essentially unresponsive party.” Id.
It serves to protect plaintiffs against “interminable delay and continued uncertainty as to
his rights.” Id. at 733. When “ruling on a motion for default judgment, the court may
rely on detailed affidavits or documentary evidence to determine the appropriate sum
for the default judgment.” Seme v. E&H Prof’l Sec. Co., Inc., No. 08-cv-01569-RPM-

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KMT, 2010 WL 1553786, at *11 (D. Colo. Mar. 19, 2010).
A party may not simply sit out the litigation without consequence. See Cessna
Fin. Corp. v. Bielenberg Masonry Contracting, Inc., 715 F.2d 1442, 1444-45 (10th Cir.
1983) (“[A] workable system of justice requires that litigants not be free to appear at
their pleasure. We therefore must hold parties and their attorneys to a reasonably high
standard of diligence in observing the courts’ rules of procedure. The threat of
judgment by default serves as an incentive to meet this standard”). One such
consequence is that, upon the entry of default against a defendant, the well-pleaded
allegations in the complaint are deemed admitted. See Charles Wright, Arthur Miller &
Mary Kane, Fed. Prac. & Proc. § 2688 (3d ed. 2010). “Ev en after default, however, it
remains for the court to consider whether the unchallenged facts constitute a legitimate
cause of action, since a party in default does not admit mere conclusions of law.” Id. at
63. A court need not accept conclusory allegations. Moffett v. Halliburton Energy
Servs., Inc. 291 F.3d 1227, 1232 (10th Cir. 2002). Althou gh “[s]pecific facts are not
necessary” in order to state a claim, Erickson v. Pardus, 551 U.S. 89, 93 (2007) (per
curiam) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)), the wellpleaded facts must “permit the court to infer more than the mere possibility of
misconduct.” Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009) (internal quotation and
alteration marks omitted). Thus, even though modern rules of pleading are somewhat
forgiving, “a complaint still must contain either direct or inferential allegations respecting
all the material elements necessary to sustain a recovery under some viable legal
theory.” Bryson v. Gonzales, 534 F.3d 1282, 1286 (10th Cir. 2008) (quotation and

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citation omitted).
III. ANALYSIS
Before addressing the merits of plaintiff’s motion for default judgment, the Court
must determine whether it has jurisdiction over this case. See Dennis Garberg &
Assocs., Inc. v. Pack-Tech Int’l Corp., 115 F.3d 767, 772 (10th Cir. 1997) (holding that
“a district court must determine whether it has jurisdiction over the defendant before
entering judgment by default against a party who has not appeared in the case”). The
Court has subject matter jurisdiction because this is an action by the United States to
reduce to judgment federal tax liabilities and foreclose on federal tax liens. See 26
U.S.C. §§ 7402(a), 7403; 28 U.S.C. §§ 1340, 1345. Reg arding the issue of personal
jurisdiction, plaintiff alleges that Bauer resides in the District of Colorado. See Docket
No. 1 at 2, ¶ 4; see also United States v. Olsen, No. 14-cv-03302-WJM-KLM, 2016 WL
322554, at *2 (D. Colo. Jan. 27, 2016). However, whether the Court has personal
jurisdiction over Bauer also depends on whether service of process was adequate.
Holcim (US) Inc. v. Limerock Materials, LLC, No. 11-cv-00686-REB-CBS, 2012 WL
4442757, at *4 (D. Colo. Sept. 26, 2012).
Relying on Fed. R. Civ. P. 4(e)(1) and Colo. R. Civ. P. 4(g), plaintiff served Bauer
by publication from April 18, 2018 through May 16, 2018, Docket No. 14; Docket No. 27
at 2, ¶ 4, and mailed a copy of the complaint and summons to Bauer’s property at 749
and 751 E. 8th Street, Akron, CO 80720. Docket No. 15 at 1, ¶ 2; Docket No. 27 at 2,
¶ 5. While these measures may have been adequate to perfect service under Colo. R.
Civ. P. 4(g), the Court finds that they do not constitute adequate service of process in

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light of the claims at issue in this case.
Rule 4(g) of the Colorado Rules of Civil Procedure allows “service by mail or
publication . . . only in actions affecting specific property or status or other proceedings
in rem.” Because Counts One and Two of the complaint seek to reduce federal tax
assessments to a personal judgment against Bauer, they are in personam claims and
outside the scope of Rule 4(g). See United States v. Elsberg, No. 08-cv-00552-MSKKLM, 2010 WL 5177439, at *3 (D. Colo. Aug. 17, 2010), report and recommendation
accepted, 2010 WL 5177499 (D. Colo. Nov. 5, 2010); cf. Sumers v. Bd. of Comm’rs of
Garfield Cty., 184 P.2d 144, 147 (Colo. 1947) (“[A] proceeding may be partly in rem and
partly in personam, such as the usual form of suit to foreclose a mortgage – in rem to
subject the property to the debt, and in personam to obtain personal judgment against
the debtor.”).1 Plaintiff was therefore required to proceed under Colo. R. Civ. P. 4(f),
which sets forth the following requirements for obtaining substitute service of process in
cases not covered by Rule 4(g):
In the event that a party attempting service of process by personal service
under section (e) is unable to accomplish service, and service by
publication or mail is not otherwise permitted under section (g), the party
may file a motion, supported by an affidavit of the person attempting
service, for an order for substituted service. The motion shall state (1) the
efforts made to obtain personal service and the reason that personal
service could not be obtained, (2) the identity of the person to whom the
party wishes to deliver the process, and (3) the address, or last known
address of the workplace and residence, if known, of the party upon
whom services is to be effected. If the court is satisfied that due diligence
has been used to attempt personal service under section (e), that further
1

As the district court noted in Elsberg, 28 U.S.C. § 6321 “anticipates the entry of
a judgment that can be enforced against property other than th[e] specific piece of real
property” at issue in this lawsuit. United States v. Elsberg, No. 08-cv-00552-MSK-KLM,
Docket No. 70 at 7:9-17 (D. Colo. June 10, 2009).
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attempts to obtain service under section (e) would be to no avail, and that
the person to whom delivery of the process is appropriate under the
circumstances and reasonably calculated to give actual notice to the party
upon whom service is to be effective, it shall:
(1) authorize delivery to be made to the person deemed appropriate for
service, and
(2) order the process to be mailed at the address(es) of the party to be
served by substituted service, as set forth in the motion, on or before the
date of delivery. Service shall be complete on the date of delivery to the
person deemed appropriate for service.
Colo. R. Civ. P. 4(f). The Colorado Supreme Court has explained that “the completion
and validity of service” under this rule “is linked to the delivery of process to the
substituted person and not to the mailing of process to the defendant.” Willhite v.
Rodriquez-Cera, 274 P.3d 1233, 1240 (Colo. 2012). T hus, “[i]f process is never
delivered to the substituted person, service can never be valid and complete under
[Colo. R. Civ. P.] 4(f).” Id.
Here, plaintiff never identified a substituted person who could receive service of
process on behalf of Bauer. As a result, plaintiff has not satisfied the requirements for
valid service under Colo. R. Civ. P. 4(f), and the motion for default judgment will be
denied.2 Because plaintiff’s failure to complete service is due in part to a court order
authorizing service of process under Colo. R. Civ. P. 4(g), the Court finds good cause to
extend the time for service under Fed. R. Civ. P. 4(m). In the event plaintiff is able to
complete service in conformity with Colo. R. Civ. P. 4(f), plaintiff may re-file its motions
for entry of default and default judgment.

2

Although Count Three falls within the scope of Colo. R. Civ. P. 4(g), it does not
make sense to proceed on that claim before Counts One and Two can be resolved.
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IV. CONCLUSION
Wherefore, it is
ORDERED that the United States’ Motion for Default Judgment Against Kyle L.
Bauer [Docket No. 27] is DENIED without prejudice. It is further
ORDERED that the Clerk’s entry of default, Docket No. 18, is set aside. It is
further
ORDERED that plaintiff shall have one hundred days, from the date of this order,
to effectuate proper service under Fed. R. Civ. P. 4. It is further
ORDERED that, within ten days of this order, plaintiff shall file a motion
requesting appropriate service under Fed. R. Civ. P. 4 and Colo. R. Civ. P. 4.

DATED September 30, 2019.
BY THE COURT:

s/Philip A. Brimmer
PHILIP A. BRIMMER
Chief United States District Judge

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