United States of America v. Hargrove et al

Filing 17

MEMORANDUM OPINION AND ORDER by Judge David J. Hale on 1/30/2017 - Defendant's motion to dismiss, or alternatively, transfer venue (D.N. 10) is DENIED. cc: Counsel, Latrina N. Hargrove via CM/ECF(DAK)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF KENTUCKY
LOUISVILLE DIVISION
UNITED STATES OF AMERICA,

Plaintiff,

v.

Civil Action No. 3:16-cv-503-DJH-CHL

LATRINA N. HARGROVE, et al.,

Defendants.
* * * * *

MEMORANDUM OPINION AND ORDER
The United States filed suit against Defendants Latrina Hargrove, Advantage Tax &
Business Services LLC, and TNH Tax Services LLC, alleging that Hargrove and her
companies submitted fraudulent tax returns to the Internal Revenue Service (IRS). (Docket
No. 1) Hargove has filed a motion to dismiss for lack of jurisdiction and improper venue or,
in the alternative, transfer this case to the Western District of North Carolina. (D.N. 10)
I.
The burden is on the United States to demonstrate that personal jurisdiction exists as
to Latrina Hargrove. See Theunissen v. Matthews, 935 F.2d 1454, 1458 (6th Cir. 1991). To
make this showing, a plaintiff “may not stand on [its] pleadings but must, by affidavit or
otherwise, set forth specific facts” demonstrating the Court’s jurisdiction.

Id.

When

presented with a motion to dismiss for lack of personal jurisdiction, the Court has three
options: (1) “decide the motion upon the affidavits alone,” (2) “permit discovery in aid of
deciding the motion,” or (3) “conduct an evidentiary hearing to resolve any apparent factual
questions.” Id. (citing Serras v. First Tenn. Bank Nat’l Ass’n, 875 F.2d 1212, 1214 (6th Cir.
1989)).

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Neither party has requested jurisdictional discovery in this case. Nor does the Court
find that there are factual disputes necessitating an evidentiary hearing. Consequently, the
government’s burden is relatively light: “Where the court relies solely on the parties’
affidavits to reach its decision, the plaintiff must make only a prima facie showing that
personal jurisdiction exists in order to defeat dismissal.” Id. The Court must view the
pleadings and affidavits in the light most favorable to the United States, without “weigh[ing]
the controverting assertions” of the defendants. Id. at 1459. Dismissal is proper only “if all
of the specific facts . . . alleged” by the United States “collectively fail[ ] to state a prima facie
case for jurisdiction.” Id.
“Federal Rule of Civil Procedure 4(k)(1)(A) states that personal jurisdiction exists
over any properly-served defendant ‘who could be subjected to the jurisdiction of a court of
general jurisdiction in the state in which the district court is located.’” Flynn v. Greg Anthony
Constr. Co., 95 F. App’x 726, 739 (6th Cir. 2003) (quoting Fed. R. Civ. P. 4(k)(1)(A)). In
Kentucky, the Court must first look to Kentucky’s long-arm statute to determine whether “the
cause of action arises from conduct or activity of the defendant that fits into one of the
statute’s enumerated categories.” Caesars Riverboat Casino, LLC v. Beach, 336 S.W.3d 51,
57 (Ky. 2011). If the statute is applicable, the Court must then apply the traditional test “to
determine if exercising personal jurisdiction over the non-resident defendant offends his
federal due process rights.” Id.
A.
Kentucky’s long-arm statute provides, in relevant part:
A court may exercise personal jurisdiction over a person who acts directly or
by an agent, as to a claim arising from the person’s:

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1. Transacting any business in this Commonwealth; [or]
2. Contracting to supply services or goods in this Commonwealth[.]
Ky. Rev. Stat. § 454.210(2)(a).
In its response to Hargrove’s motion to dismiss, the United States asserts that the
Court may exercise personal jurisdiction over Hargrove under either of the above subsections
of the long-arm statute. (D.N. 12, PageID # 148) The United States states that Hargrove
prepared tax returns for clients located “in and around the Louisville, Kentucky metropolitan
area.” (Id. at 149 (citing Decl. of Revenue Agent Pamela Ciccottelli, D.N. 7-2, PageID # 92))
Therefore, “as a tax return preparer, she is conducting business within the forum state and has
contracted to provide tax preparation services within the Commonwealth of Kentucky.” (Id.)
Additionally, the government states that Hargrove incorporated her business,
“Advantage Tax & Business Services [LLC]” in Kentucky. (Id. (citing Decl. of Nicole
Williams, D.N. 12-2, PageID # 163–64)) Hargrove allegedly listed the company’s address as
“652 South 40th Street, Louisville, KY 40211.” (Id.) Therefore, the United States asserts that
Hargrove was present in Kentucky “as the agent for her tax preparation business,” hired
employees for the business from the Western District of Kentucky, and “prepared fraudulent
tax returns within this district.” (Id.)
Based on these assertions, the Court finds that the United States has met its burden of
showing that this case “arises from conduct or activity of the defendant that fits into one of the
statute’s enumerated categories.” Caesars, 336 S.W.3d at 57.
B.
Because the Kentucky’s long-arm statute applies, the Court must next determine “if
exercising personal jurisdiction over the non-resident defendant offends [her] federal due

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process rights.” Id. To make a prima facie showing of due process, the United States must
“establish with reasonable particularity sufficient ‘minimum contacts’ with [Kentucky] so that
the exercise of jurisdiction over [Hargrove] would not offend ‘traditional notions of fair play
and substantial justice.’” Neogen Corp. v. Neo Gen Screening, Inc., 282 F.3d 883, 889 (6th
Cir. 2002) (quoting Int’l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)).
According to the Sixth Circuit, specific jurisdiction over Hargrove exists only if her
contacts with Kentucky satisfy the following three-part test:
First, the defendant must purposefully avail himself of the privilege of acting
in the forum state or causing a consequence in the forum state. Second, the
cause of action must arise from the defendant’s activities there. Finally, the
acts of the defendant or consequences caused by the defendant must have a
substantial enough connection with the forum state to make the exercise of
jurisdiction over the defendant reasonable.
Bird v. Parsons, 289 F.3d 865, 874 (6th Cir. 2002) (citing Calphalon Corp. v. Rowlette, 228
F.3d 718, 721–24 (6th Cir. 2000); Southern Machine Company v. Mohasco Industries, Inc.,
401 F.2d 374, 381 (6th Cir. 1968)).
For the reasons stated above with respect to the state’s long-arm statute, the United
States asserts that Hargrove “has conducted business within this district and has purposefully
availed herself of the Court’s jurisdiction by targeting clients within this district.” (D.N. 12,
PageID # 147) Next, the government argues that it is seeking to prevent Hargrove from
“filing false and fraudulent tax returns like the ones she filed for clients located within this
district.”

(Id. at 150)

Therefore, the United States argues that its claims arise from

Hargrove’s activities in the district.

(Id.)

Finally, the United States argues that it is

reasonable for this Court to exercise jurisdiction over Hargrove.

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To determine whether exercising jurisdiction is reasonable, the Court “must consider
the burden on the defendant, the interests of the forum State, and the plaintiff’s interest in
obtaining relief.” Asahi Metal Indus. Co. v. Superior Court of California, Solano Cty., 480
U.S. 102, 113 (1987). The government states that it will attempt to mitigate the burden on
Hargrove by allowing her to appear by telephone when possible. (Id.) The government next
asserts that the “Commonwealth of Kentucky has a strong interest in ensuring that Hargrove’s
customers who live in this judicial district, and who utilized Hargrove’s services, are not
further victimized by her activities in deliberately understating their federal tax liabilities.”
(Id. at 151) Third, the United States provides that if the Court does not exercise jurisdiction
over Hargrove, it “will be forced to litigate a case in North Carolina when the bulk of the
harm resulting from that case, as well as nearly all of the witnesses in that case, are present in
Louisville, Kentucky.” (Id.)
Viewing the pleadings and affidavits in the light most favorable to the United States,
the Court finds that the government has met its burden of showing that Hargrove has
sufficient minimum contacts with Kentucky such that the exercise of jurisdiction over her
would not offend “traditional notions of fair play and substantial justice.” Neogen, 282 F.3d
at 889. Therefore, because the two-part test for personal jurisdiction has been met, the Court
has personal jurisdiction over Hargrove. See Caesars, 336 S.W.3d at 57.
II.
Hargrove next argues that the Western District of Kentucky is an improper venue for
the suit. The United States alleges, in relevant part, that Hargrove violated 26 U.S.C. § 7407
when she filed fraudulent tax returns with the IRS. Section 7407 provides that “[a]ny action
under this section shall be brought in the District Court of the United States for the district in

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which the tax preparer resides or has [her] principal place of business or in which the taxpayer
with respect to whose tax return the action is brought resides.” 26 U.S.C. § 7407(a). While
there is no dispute that Hargrove currently resides and has her principal place of business in
North Carolina, the government asserts that “the taxpayers for whom Hargrove prepared
returns are located in” the Western District of Kentucky. (D.N. 12, PageID # 152 (citing
Decl. Ciccottelli, D.N. 7-2, PageID # 92))
Additionally, 28 U.S.C. § 1391 provides that “[a] civil action may be brought in . . . a
judicial district in which a substantial part of the events or omissions giving rise to the claim
occurred, or a substantial part of property that is the subject of the action is situated.” 28
U.S.C. § 1391(b)(2). The United States provides that Hargrove prepared tax returns “for
numerous clients located in and around Louisville, Kentucky.” (D.N. 12, PageID # 152
(citing Decl. Ciccottelli, D.N. 7-2, PageID # 92)) The government also points to many of the
same facts provided above, such as the incorporation of Advantage Tax & Business Services,
LLC in Kentucky and details of the investigation that show correspondence between
Hargrove and clients in Louisville, Kentucky. (Id.)
Because affected taxpayers reside in and around Louisville, Kentucky and a
substantial part of the events occurred in the district, the Court concludes that the venue is
proper.
III.
Finally, Hargrove argues that the Court should transfer the case to the Western District
of North Carolina any alleged misconduct occurred in North Carolina, where she worked and
resided. (D.N. 10, PageID # 131) The United States contends that the case should remain in
the Western District of Kentucky because transferring it “would cause further undue hardship

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to the taxpayers that have borne the burden of Hargrove’s false and fraudulent filings, and
would not promote the convenience of parties or witnesses, or the interests of justice.” (D.N.
12, PageID # 154)
The threshold question before transferring a case is always whether the action “might
have been brought” in the potential transferee venue. 28 U.S.C. § 1404(a). Then a potential
transferor court must “consider the private interests of the parties, including their convenience
and the convenience of potential witnesses, as well as other public-interest concerns, such as
systematic integrity and fairness, which come under the rubric of ‘interests of justice.’”
Moore v. Rahm & Haas Co., 446 F.3d 643, 647 n.1 (6th Cir. 2006) (citation omitted). In
addressing these considerations, the Court examines: “(1) the location of witnesses; (2) the
parties’ residences; (3) the location of evidence; (4) the location of events that gave rise to the
suit; (5) systematic integrity and fairness; and (6) plaintiff’s choice of forum.” Hilbert v.
Lincoln Nat. Life Ins. Co., No. 3:14-CV-565-JGH, 2015 WL 1034058, at *1 (W.D. Ky. Mar.
9, 2015). The burden is on the moving party to demonstrate that the balance of the factors
weighs in favor of transfer. Adams v. Honda Motor Co., Ltd., No. 3:05-cv-120-S, 2005 WL
3236790, at *1 (W.D. Ky. Nov. 21, 2005) (citing 15 C. Wright, A. Miller & E. Cooper,
Federal Practice and Procedure, § 3848 (1986)).
Here, the first factor weighs against transfer.

The United States asserts that “a

substantial number of taxpayers for whom Hargrove prepared returns are located within this
district.”

(D.N. 12, PageID #156 (citing Decl. Ciccottelli, D.N. 7-2, PageID # 92)).

Additionally, the government provides that it plans to call taxpayers that reside in this district
as witnesses at trial. (Id.) Therefore, the witnesses are located in the Western District of
Kentucky.

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The second factor weighs in favor of transfer. Hargrove states that she is a single
mother raising three children who are enrolled in public schools in North Carolina and
traveling to the Western District of Kentucky would be difficult for her. (D.N. 5-1, PageID #
52) The United States states that while the IRS’s investigation was primarily “conducted in
and around Louisville, Kentucky,” its attorneys from Washington, D.C. “will travel to any
venue in which this case is located.” (D.N. 12, PageID # 155)
The third and fourth factors weigh against transferring the case. The United States
asserts that the tax returns at issue in this case are mostly stored on IRS databases located
throughout the country and transferring the case would not affect access to these documents.
(D.N. 12, PageID # 157) Instead, the government’s primary concern is location of witnesses.
The United States provides that “compulsory process will not be available to compel the
attendance of witnesses” if the case is transferred to the Western District of North Carolina.
(Id.) Therefore, the government argues that its ability to present live testimony could be
negatively impacted. (Id.) Additionally, taxpayer-witnesses living in and around Louisville
could possess documents that are relevant to this case. (Id.) Even if witnesses agree to travel
to the Western District of North Carolina, the government argues that the travel expenses for
these witnesses “greatly outweigh” the cost of Hargrove traveling to Louisville, Kentucky.
(Id.) Finally, as explained above, the government maintains that a substantial part of the
events that give rise to this case occurred in the Western District of Kentucky. (Id., PageID #
152)
The fifth factor is a close call. On the one hand, Hargrove is a single mother who
could face great hardship by having to litigate the case in Kentucky. (D.N. 5-1, PageID # 52)
On the other hand, the United States alleges that Hargrove deliberately filed fraudulent tax

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returns on behalf of clients in the Western District of Kentucky. (D.N. 12, PageID # 158)
The United States argues that it would be unfair to force the taxpayers, who have allegedly
been harmed by Hargrove, to bear the burden of traveling to the Western District of North
Carolina “to see that justice is done.” (Id.)
The final factor weighs against transfer because the United States chose to file this
case in the Western District of Kentucky, and “[u]sually, a plaintiff’s choice receives
deference.” Hilbert, 2015 WL 1034058, at *2. The Court agrees that the burden on witnesses
and alleged victims in this district would be significant. After considering the above factors,
the Court declines to transfer this case to the Western District of North Carolina.
Accordingly, and the Court being otherwise sufficiently advised, it is hereby
ORDERED that Defendant’s motion to dismiss, or alternatively, transfer venue (D.N.
10) is DENIED.

January 30, 2017

David J. Hale, Judge
United States District Court

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