United States of America v. Barrow
MEMORANDUM AND ORDRE DENYING DEFENDANTS' MOTION TO SET ASIDE CLERK'S ENTRY OF DEFAULT [DOC. 9]. Signed by District Judge Avern Cohn. (MVer)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
UNITED STATES OF AMERICA,
Case No. 16-14151
THOMAS J. BARROW,
HON. AVERN COHN
MEMORANDUM AND ORDER DENYING DEFENDANTS’ MOTION TO SET ASIDE
CLERK’S ENTRY OF DEFAULT (Doc. 9)1
This is a debt collection case. Plaintiff, the United States of America (the
government) sued to collect on a tax debt owed by defendant Thomas J. Barrow. As
will be explained, defendant did not appear or otherwise defended the case.
Accordingly, the Clerk entered a default against defendant and eventually, a default
Before the Court is defendant’s motion to set aside the Clerk’s entry of default
(Doc. 9). For the reasons that follow, the motion is DENIED.
In 2016, the government brought this action to reduce to judgment defendant’s
joint federal income tax liabilities for 2004-12 and 2014, as well as his individual federal
Upon review of the parties’ papers, the Court deems this matter appropriate for
decision without oral argument. See Fed. R. Civ. P. 78(b); E.D. Mich. LR 7.1(f)(2).
income tax liabilities for 1987-88.2
On November 25, 2016, the government filed its complaint. (Doc. 1). On
November 28, 2016, the government’s counsel mailed defendant copies of the
Complaint, FRCP 4, the standard form Notice of a Lawsuit and Request to Waive
Service of a Summons (AO 398) (Notice of Waiver), two copies of the standard form
Waiver of the Service of Summons (AO 399) (Waiver Form), a stamped, self-addressed
envelope, and a cover letter. The cover letter requested that the defendant return the
signed Waiver Form by December 28, 2016. See Exhibits 2, 3 to defendant’s motion
On January 11, 2017, the government’s counsel filed the signed Waiver Form
that he received in the mail from defendant. (Doc. 3). The Waiver Form, which is
signed by Defendant, states that “I also understand that I, or the entity I represent, must
file and serve an answer or a motion under Rule 12 within 60 days from 11/28/16, the
date when this request was sent….If I fail to do so, a default judgment will be entered
against me or the entity I represent.” See Exhibit 2 to defendant’s motion. Thus,
defendant had 60 days from November 28, 2016, or January 27, 2017 in which to file an
answer or other response to the complaint. Similarly, the Notice of Waiver states that
“you will have 60 days from the date this notice is sent (see the date below) [November
28, 2016] to answer the complaint.” See Exhibit 2 to defendant’s motion. Defendant did
Defendant has been a party in at least two other court proceedings involving his
federal taxes. In 1994, defendant was convicted in this district on various charges
brought by the government, including income tax evasion for tax years 1987 and 1988,
and filing false tax returns for those years. United States v. Barrow, 93-cr-81042 (E.D.
Mich.) In addition, defendant litigated a case in Tax Court, in which the Tax Court
determined, after trial, that defendant owed deficiencies, including fraud penalties, for
1987 and 1988. Barrow v. Comm’r, T.C. Memo 2008-264, 2008 WL 5000112 (Nov. 25,
not file an answer or otherwise appear in the case by January 27, 2017.
Accordingly, on February 2, 2017, the government filed a Request for Clerk’s
Entry of Default. (Doc. 4). The request was served on defendant by U.S. Mail sent to
the address shown on the signed Waiver Form. The Clerk entered default the next day,
on February 3, 2017. (Doc. 5).
On February 13, 2017, the government then filed a Request for Clerk’s Entry of
Default Judgment. (Doc. 6). A copy of the request was served on defendant by U.S.
Mail sent to the address shown on the signed Waiver Form. The Clerk entered default
judgment the same day, on February 13, 2017. The judgment is in the amount of
$385,056.09 plus applicable interest for unpaid joint federal income tax liabilities for
2004-2012 and 2014 and $653,984.93 plus applicable interest for unpaid individual
federal income tax liabilities and civil fraud penalties for 1987 and 1988. (Doc. 8).
Eleven days after entry of default judgment, on February 24, 2017, defendant
filed the instant motion. (Doc. 9). The government, at the Court’s request, filed a
response. (Doc. 11).
At the outset, defendant incorrectly treats his motion as seeking relief from
Clerk’s entry of default, when in fact default judgment has already been entered. Thus,
the standard applicable to setting aside a default judgment, not a Clerk’s entry of
Fed. R. Civ. P. 55(c) governs setting aside a default. It reads:
(c) Setting Aside Default. For good cause shown the court may set aside
an entry of default and, if a judgment by default has been entered, may
likewise set it aside in accordance with Rule 60(b).
The decision to set aside a default is left to the court’s discretion. Shepard Claims
Service, Inc. v. William Darrah & Associates, 796 F.2d 190, 193 (6th Cir. 1984).
As noted above, Rule 60(b) applies. It sets forth the following grounds for setting
aside a default judgment: (1) mistake, inadvertence, or excusable neglect; (2) newly
discovered evidence; (3) fraud, misrepresentation or other misconduct of the adverse
party; (4) the judgment is void; (5) the judgment is satisfied, released or discharged; (6)
any other relief justifying relief from judgment. Fed. R .Civ. P. 60(b)(1)-(6). The Court
must apply Rule 60(b) “equitably and liberally . . . to achieve substantial justice.”
United Coin Meter Co. v. Seaboard Coastal Line R.R., 705 F.2d 839, 844–45 (6th Cir.
1983). The decision to vacate a default judgment is entrusted to the trial court's
discretion. In re Walter, 282 F.3d 434, 440 (6th Cir. 2002).
In United Coin Meter Co., 705 F.2d at 845, the Sixth Circuit set forth three factors
to be considered in deciding a Rule 60(b) motion: (1) whether plaintiff will be
prejudiced; (2) whether the defendant has a meritorious defense; and (3) whether
culpable conduct of the defendant led to the default. The Sixth Circuit has further
explained that the “culpable conduct” factor is the most critical consideration in a motion
to set aside a default judgment under Rule 60(b)(1). See Waifersong, Ltd., Inc. v.
Classic Music Vending, 976 F.2d 290, 292 (6th Cir.1992).
Defendant has not satisfied either the culpability or meritorious defense standard.
As to culpable conduct, although defendant filed his motion eleven days after entry of
default judgment, he fails to mention that he took no action after being served with a
copy of the Clerk’s entry of default. In addition, defendant failed to comply with the
language in the Waiver Form, which states that “I also understand that I, or the entity I
represent, must file and serve an answer or a motion under Rule 12 within 60 days from
11/28/16, the date when this request was sent….If I fail to do so, a default judgment will
be entered against me or the entity I represent.” Defendant argues that he mistakenly
took this to mean he had 60 days from the date he returned the Waiver Form to file an
answer. This argument is not tenable in light of the fact that the Waiver Form clearly
states that he had 60 days from 11/28/16, or until 1/27/17, to answer. Likewise, the
accompanying Notice of Waiver also references a specific date – 11/28/16 – that
triggers the beginning of the 60-day period for defendant to file an answer. Moreover,
as the government points out, defendant is a sophisticated party. He founded his own
certified public accounting firm, and he ran for mayor of Detroit several times. He also
understands the court system, having been a defendant in a criminal tax proceeding in
this district and a petitioner in a case in Tax Court which proceeded to trial. As such,
defendant has not shown that his actions which led to the default judgment were the
result of mistake, inadvertence, surprise, or excusable neglect. He therefore cannot
establish the culpability element for Rule 60(b)(1).
Moreover, even if defendant could satisfy the culpability element, he has not
showed that he has a meritorious defense. A defense is meritorious “if there is some
possibility that the outcome of the suit after a full trial will be contrary to the result
achieved by the default.” Burrell v. Henderson, 434 F.3d 826 at 834 (6th Cir. 2006). “If a
defense is ‘good at law,’ regardless of the likelihood of success, it will be considered
meritorious.” Id. However, this does not mean that “a party opposing a default judgment
[can] merely deny the plaintiff's allegations.” See Joe Hand Promotions, Inc. v. Blue
Pearl, LLC, 2009 WL 5210842, at 2 (E.D. Ky. Dec. 23, 2009).
Here, defendant does nothing more than generally deny the government’s
allegations. He says he has a meritorious defense because “plaintiff incorrectly
includes in liabilities amounts which are specifically precluded from assessment by 26
U.S.C. § 6501(a); plaintiff also improperly includes amounts which are prohibited from
assessment by 26 U.S.C. § 6612(a).” Defendant’s motion, at p. 9. However, defendant
does not provide any explanation or evidence to support these arguments. His similar
argument that “plaintiff herein also failed to apply payments as directed by me; plaintiff
fails to apply refunds retained from previous periods” Defendant’s motion, at p. 9, also
fails to mention which payments were alleged misapplied, or which tax years they
pertain to. Defendant also says that he “timely filed a request pursuant to 26 C.F.R. §
301.6330-1 for a ‘Collection Due Process’ Hearing which plaintiff simply and illegally
ignored.” Defendant’s motion, at p. 9. However, defendant does not specify when he
sent the hearing request, how he sent it to the IRS, and why he sent it. His argument
that the IRS failed to properly apply the Tax Court’s decision in his purported
“successful challenge” to his 1987 and 1988 liabilities is similarly defective. He does not
explain how the IRS failed to properly apply the decision, nor does he reference any
specific portion of the decision to supports his argument that the Tax Court ruled in his
favor as to his individual 1987 and 1988 tax liabilities. Overall, defendant has not
established that he has a meritorious defense to this action.
Finally, if the Court were to grant Rule 60(b)(1) relief from default judgment, the
government would be prejudiced by having to resume its decadeslong collection
attempts. See United States v. Rouse, 2009 WL 1259964, at *4
(E.D. Mich. Apr. 30, 2009) (the government is prejudiced by having to wait longer to
be repaid on 20-year-old loan guaranty).
That said, nothing in this order precludes the parties from reaching a payment
agreement to satisfy the amounts due under the judgment.
Dated: March 30, 2017
UNITED STATES DISTRICT JUDGE
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