United States of America v. Prewett et al

Filing 76

ORDER denying 64 Defendant Natalie Swaney's Motion to Dissolve Permanent Injunction. Signed by Judge Virginia M. Hernandez Covington on 1/7/2013. (CH)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
TAMPA DIVISION
UNITED STATES OF AMERICA,
Plaintiff,
v.

Case No. 8:07-cv-1575-T-33MAP

DANIEL L. PREWETT, et al.,
Defendants.
____________________________/
ORDER
This

matter

comes

before

Defendant

Natalie

Swaney’s

the

Motion

Court

to

pursuant

Dissolve

Injunction (Doc. # 64), filed on May 14, 2012.

to

Permanent
The United

States filed a response in opposition to the motion (Doc. #
65) on May 29, 2012.

With leave of Court, Swaney filed a

reply

States’

to

the

United

September 27, 2012.

response

(Doc.

#

69)

on

Also with leave of Court, the United

States filed a surreply (Doc. # 70-1) on October 3, 2012.
On December 18, 2012, the Court held a hearing and heard
oral argument on the motion.

For the reasons that follow,

the motion is denied.
I.

Background
On September 5, 2007, the United States commenced this

action for permanent injunctive relief against Swaney and

seven other defendants.

(Doc. # 1)

The complaint alleged

that Swaney, along with the other defendants, participated
in a $130 million IRS tax fraud scheme.

According to the

complaint, Swaney used a number of schemes to under-report
customers’ tax liabilities, such as helping customers to
create fictitious businesses in order to disguise personal
expenditures as business deductions.

Id. at ¶¶ 26-29.

The

complaint further alleged that Swaney had engaged in false
and deceptive conduct before the IRS.
The

complaint’s

first

Id. at ¶ 50.

count

sought

an

injunction

against Swaney under Section 7407 of the Internal Revenue
Code (IRC).

Id. at 19-20.

That section authorizes a court

to permanently enjoin a person from acting as a federaltax-return

preparer

if

the

person

has

continually

or

repeatedly (a) engaged in fraudulent or deceptive conduct
that

interferes

with

the

proper

administration

of

the

internal revenue laws or (b) engaged in conduct that is
subject to penalty under IRC §§ 6694 or 6695.
7407(b).
preparer
prepared

Section
knew

or

would

6694
should

imposes
have

understate

known
tax

unrealistic or frivolous position.

2

a

penalty
that

if

the

liability

See IRC §
a

return

return
due

to

See IRC § 6694(a).

she
an

The

complaint’s

second

count

against Swaney under IRC § 7408.

sought

an

injunction

(Doc. # 1 at 20-21).

That section authorizes a court to enjoin a person from
engaging in any conduct that is subject to penalty under
the IRC if the person has engaged in “specified conduct,”
which is defined to include any conduct that is subject to
penalty under, among other sections, IRC § 6701.

See IRC §

7408(a), (c).
The

complaint’s

third

count

against Swaney under IRC § 7402.

sought

an

injunction

(Doc. # 1 at 22).

That

section authorizes a court to issue any order or injunction
that is necessary or appropriate for the enforcement of the
internal revenue laws.

See IRC § 7402(a).

On January 26, 2009, Swaney and her counsel signed a
stipulation
issuance

of

by
an

which

Swaney

order

that

consented
would

injunctions sought in the complaint.
stipulation
assess

expressly

penalties

stated

against

that

Swaney

to

impose

the

Court’s

the

three

(Doc. # 52).

the

IRS

based

on

might
the

The
later

conduct

alleged in the complaint, but it also reserved Swaney’s
right to challenge those assessments.

Id. at 2.

This

Court then entered a Final Judgment that incorporated the

3

stipulation and imposed the three injunctions.

(Doc. #

53).
Approximately

seven

months

after

the

Final

Judgment

was entered, the IRS assessed $86,000 in § 6701 penalties
against Swaney. The IRS made this assessment based on the
determination that Swaney had prepared over 30 tax returns
with

actual

knowledge

others’ tax liability.

that

the

returns

would

understate

Swaney challenged that assessment

by commencing an action in the United States District Court
for the Middle District of Florida.

After a six-day trial,

the jury found that the United States had not established
that Swaney had actual knowledge that the tax returns at
issue would understate another person’s tax liability.
On

May

14,

2012,

Swaney

filed

the

instant

motion,

which seeks an order dissolving the injunctions contained
in the Final Judgment.
finding

constitutes

a

Swaney contends that the jury’s
significant

change

in

the

factual

circumstances that gave rise to the injunctions and thus
provides

grounds

injunctions

in

for

the

accordance

Court
with

Procedure 60(b).
II.

Analysis

4

to

Federal

dissolve

those

Rule

Civil

of

Swaney’s request for relief from a final judgment is
governed by Federal Rule of Civil Procedure 60(b).

That

rule provides, in pertinent part:
On motion and just terms, the court may relieve
a party or its legal representative from a final
judgment, order, or proceeding for the following
reasons: . . . (5) the judgment has been
satisfied, released, or discharged; it is based
on an earlier judgment that has been reversed or
vacated; or applying it prospectively is no
longer equitable; or (6) any other reason that
justifies relief.
A district court has broad discretion to grant relief
from

a

final

application

of

judgment
the

in

circumstances

judgment

would

be

where

continued

inequitable.

See

Johnson v. Florida, 348 F.3d 1334, 1341 (11th Cir. 2003).
A party requesting relief under Rule 60(b) “bears a heavy
burden

of

necessary.

persuasion”

to

show

that

the

modification

is

Id.

In evaluating Rule 60(b) motions, the Supreme Court
has articulated two different standards: the Swift standard
and the Rufo standard.

In United States v. Swift & Co.,

286 U.S. 106, 119 (1932), defendant meatpackers agreed to a
consent

decree

which

enjoined

them

manipulating the meat-packing industry.

from
Id.

economically
Ten years

later, the meatpackers sought a modification of the consent

5

decree.

Id. at 115-16.

meatpackers
because

had

they

failed

were

in

The Supreme Court found that the
to

meet

their

burden

the

same

position

to

of

proof

manipulate

transportation costs and fix grocery prices as they had
been ten years prior when they entered into the consent
decree.

Id.

In

reaching

this

conclusion,

the

Supreme

Court distinguished the meatpackers’ case from one in which
there are genuine changes requiring modification.
114-15

(“Nothing

less

than

a

clear

showing

of

Id. at
grievous

wrong evoked by new and unforeseen conditions should lead
us to change what was decreed after years of litigation
with the consent of all concerned.”).
In Rufo v. Inmates of Suffolk County Jail, 502 U.S.
367, 380 (1992), the Supreme Court clarified that Swift’s
“grievous wrong” language “was not intended to take on a
talismanic quality, warding off virtually all efforts to
modify

consent

decrees.”

Instead,

the

Supreme

Court

determined that “[Rule 60(b)], in providing that, on such
terms as are just, a party may be relieved from a final
judgment or decree where it is no longer equitable that the
judgment

have

prospective

application,

permits

stringent, more flexible standard.”

Id.

Supreme

flexible

Court

found

that

a

more

6

a

less

Specifically, the
approach

was

essential to achieving the goals of institutional reform
litigation,

which

federal

courts

had

addressed

with

increasing frequency since Brown v. Board of Education, 347
U.S. 483 (1954).
Accordingly,

the

Supreme

Court

held

that

Swift’s

“grievous wrong” standard does not apply to requests to
modify consent decrees stemming from institutional reform
Rufo, 502 U.S. at 393.

litigation.

Instead, the Supreme

Court adopted a more flexible standard pursuant to which “a
party

seeking

establish
warrants

modification

that

a

revision

modification
circumstance.”

significant
of

is

of

the

consent

change

decree

in

facts

must

or

law

that

the

proposed

to

the

changed

provided

Rufo

and

decree

tailored

suitably
Id.

a

three

examples

of

instances warranting Rule 60 relief under this standard:
(1) when changed factual conditions make compliance with
the decree substantially more onerous, (2) when a decree
proves

to

circumstances,
without

be

unworkable

and

(3)

modification

interest.

when

would

be

because

of

enforcement

of

detrimental

unforeseen
the

to

decree

the

public

Id. at 384.

The Eleventh Circuit has since applied the “changed
circumstances”

standard

established

7

in

Rufo

to

determine

whether modification or termination of a consent decree is
appropriate.

See

Johnson,

348

F.3d

at

1342-45;

United

States v. City of Miami, 2 F.3d 1497, 1503-06 (11th Cir.
In United States v. City of Miami, the Eleventh

1993).

Circuit provided that, in considering whether to modify a
consent decree, the first step was to determine the “basic
purpose” of the decree.
the

proposed

purpose,

it

City of Miami, 2 F.3d at 1504.

modification
would

was

frustrate

should not be permitted.

directed

the

to

purpose

that

and

Id. at 1504-05.

If

basic

therefore

On the other

hand, if the proposed modification was directed only to
“one of several means of accomplishing the purpose . . . or
one of several means of measuring compliance,” then the
modification

might

be

permitted.

Id.

In

Johnson,

the

Eleventh Circuit characterized City of Miami as “merely a
gloss

or

standard.”

a

method

of

applying

Rufo,

not

a

distinct

Johnson, 348 F.3d at 1344.

Generally, since the Supreme Court’s decision in Rufo,
“there has been considerable disagreement among the Courts
of Appeals on whether the Rufo standard also applies to
modifications

of

consent

institutional-reform

decrees

litigation

.

arising
.

.

out
.”

of
In

nonre

Consolidated Non-Filing Ins. Fee Litigation, Nos. 2:96-md-

8

1130-MEF,

2:94-cv-699-UWC,

2:97-cv-832-UWC,

2010

WL

1250873, at *2 (M.D. Ala. Mar. 24, 2010) (“Some courts have
held that the Rufo standard applies to all Rule 60(b)(5)
motions to modify consent decrees.

Other courts have held

that the more stringent ‘grievous wrong’ standard, first
announced by the Supreme Court in United States v. Swift &
Co., applies instead.

Still other courts have held that

the Rufo and Swift standards are two poles along a spectrum
of possible standards and that courts must identify the
proper

standard

on

this

continuum

by

considering

and

balancing all of the relevant equitable factors in each
particular case.”) (internal citations omitted).
In evaluating the circumstances of the instant case,
the Court finds the reasoning of National Organization for
Women v. Scheidler, No. 86-C-7888, 2007 WL 1280654 (N.D.
Ill. Apr. 30, 2007), persuasive.

In Scheidler, defendant

Randall Terry entered into an agreement to refrain from
interfering with the right of plaintiffs, several health
care

clinics,

with

which

Although
remaining

to

Terry

Terry

perform

abortions

personally

chose

defendants

to

enter

took

and

other

at

*1.

agreement,

the

to

and

disagreed.
into

their

the

claims

Id.

ultimately obtained a judgment in their favor.

9

activities

trial

Id. at *2.

As

a

result,

Terry

moved

to

vacate

the

consent

decree,

reasoning that the decree should no longer apply since it
had been established that the clinic never actually had a
sufficient claim against the defendants.
Applying

Rufo,

the

court

Id.

denied

Terry’s

motion

and

reasoned that “Terry agreed to refrain from engaging in the
acts

that

precipitated

this

action.

The

injunction

embodied in the Order is necessary to ensure that Terry
keeps his end of the bargain.”

Id. at *5.

The Scheidler

court additionally referenced the guiding principle that “a
party to a settlement cannot avoid the agreement merely
because

he

insufficient.”

subsequently
Id.

believes

the

settlement

Consistent with this observation, the

court ultimately found that Terry “voluntarily settled his
dispute with the Plaintiffs and is bound to live with the
consequences of his decision.”
Like

the

defendant

in

Id. at *6.

Scheidler,

Swaney

voluntarily

consented to the injunctions at issue, and must live with
the

consequences

of

that

decision.

The

Court

need

not

decide whether the Rufo or the Swift standard applies in
the instant case, because the Court finds that Swaney has
failed to meet even the more relaxed burden described in
Rufo and interpreted by the Eleventh Circuit in City of

10

Miami and Johnson.
Court

“has

Rather, Swaney argues only that this

substantial

discretion

to

grant

relief

under

Rule 60(b),” and that “[Rule 60] has been referred to as
‘the grand reservoir of equitable power to do justice in a
particular case.’”

(Doc. # 69 at 2) (quoting F.D.I.C. v.

United Pacific Ins. Co., 152 F.3d 1266, 1272 (10th Cir.
1998)).
By

consenting

to

the

injunctions

proposed

by

the

United States, Swaney agreed that she would forever refrain
from

engaging

preparing

tax

in

returns

before the IRS.
of

the

certain

in

the

for

others

of
or

conduct,

such

representing

as

others

The Court finds that the “basic purpose”

injunctions

engaging

types

was

indeed

conduct

to

prohibit

described

Swaney

therein,

and

from
that

dissolving the injunctions would certainly frustrate that
purpose.
suggest
become

Additionally,
that

Swaney

enforcement

unworkable

due

to

of

has

the

alleged

relevant

unforeseen

no

facts

judgment

circumstances,

to
has

that

compliance with the judgment has become substantially more
onerous,

or

that

continued

enforcement

of

the

judgment

would be detrimental to the public interest.
In this case, the Court finds that the public interest
is

best

served

by

keeping

11

the

injunctions

in

place.

Settlements

further

the

public

interest,

and

the

relief

that Swaney seeks, if granted, would not only undermine the
settlement

to

which

she

consented,

but

it

also

might

discourage settlements of future injunction actions against
tax-return

preparers.

Furthermore,

if

a

tax-scheme

promoter or return preparer could undo a consent injunction
simply because the promoter or preparer later prevailed in
a penalty

suit

involving

only

a

portion

of

the

conduct

alleged in the initial complaint seeking the injunction,
the

IRS

might

hesitate

to

assess

penalties

that

should

rightfully be assessed.
Lastly, the Court finds unconvincing Swaney’s attempts
to equate the material issues resolved in the penalty suit
with those in the original injunction action.

As explained

above, Swaney cites the jury’s finding in her penalty suit
as

a

significant

injunctions

change

in

inequitable.

fact

This

that

renders

the

position

ignores

the

differences between the claims that were settled in the
injunction suit and the claims that were litigated in the
penalty suit. In the penalty suit, the jury was asked to
determine
returns

whether

she

liabilities.

Swaney

prepared

had

would

actual

knowledge

understate

her

that

the

clients’

tax

While the United States made this claim in

12

the injunction suit, its claims in the injunction suit also
rested on allegations that Swaney prepared returns that she
reasonably

should

understatements,
false

and

jury’s
fails

and

deceptive

conclusion
to

have

known

additionally
conduct

concerning

influence

would

the

result

that

before

Swaney

the

Swaney’s

viability

of

in

liability
engaged

in

Thus,

the

IRS.
actual

the

knowledge

United

States’

claims for injunctions under IRC § 7407 or IRC § 7402.
III. Conclusion
Swaney’s

successful

defense

against

the

§ 6701

penalties is not a change in fact or law that warrants
modification or dissolution of the Final Judgment.
Accordingly, it is
ORDERED, ADJUDGED, and DECREED:
Defendant

Natalie

Swaney’s

Motion

to

Dissolve

Permanent Injunction (Doc. # 64) is DENIED.
DONE and ORDERED in Chambers in Tampa, Florida, this
7th day of January, 2012.

Copies:
All Counsel of Record

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