United States of America v. Thompson et al

Filing 58

ORDER - The United States of America's Motion to Compel Discovery Responses (Filing No. 40 ) is granted. The Thompsons shall have to on or before July 3, 2014, to supplement their responses to the plaintiffs January 29, 2014, Interrogato ries and Requests for Production of Documents, without objection. The Thompsons shall file a certificate of service upon serving their responses. The Thompsons' Motion to Quash United States Motion to Compel Discovery Responses (Filing No. 4 3) is denied. The Thompsons' Objection to Non-Party Subpoena to Issue on May 7, 2014 Upon Bank of America (Filing No. 49 ) is overruled. The plaintiff may re-issue the subpoena. The Thompsons' Motion to Quash Plaintiff's Subpo ena Upon Bank of America (Filing No. 52 ), arguing the May 9, 2014, subpoena was improperly issued without an authorized signature, is denied as moot because this order requires the plaintiff to re-issue the subpoena. Ordered by Magistrate Judge Thomas D. Thalken. (Copies mailed to defendants) (AOA)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEBRASKA
UNITED STATES OF AMERICA,
Plaintiff,

8:13CV180

vs.
ORDER
HARLAN M. THOMPSON; DIANE C.
THOMPSON; MAPLE LEAF FUNDING,
A “PURE” TRUST; CAPITOL ONE
BANK; and DISCOVER BANK,
Defendants.
This matter comes before the court on the plaintiff United States of America’s
Motion to Compel Discovery Responses (Filing No. 40) and on a subsequent related
Objection to Non-Party Subpoena to Issue on May 7, 2014 Upon Bank of America
(Filing No. 49) filed by the defendants Harlan Thompson and Diane Thompson (the
Thompsons). In the motions, the parties dispute whether certain of the defendants’
financial information, including the transfer of property into a trust, is discoverable prior
to this court’s determination on the validity of several tax assessments.

Without

exception, the financial information is discoverable at this time.

BACKGROUND
The plaintiff filed this action in an attempt to reduce to judgment the federal
income tax assessments made against the Thompsons and foreclose federal tax liens
on property. See Filing No. 1 - Complaint p. 1. To this end, the government alleges the
Thompsons owe outstanding tax assessments and either created a sham trust or
fraudulently transferred property to avoid payment. Id. Additional details follow based
on a summary of facts alleged in the Complaint. On June 2, 2000, the Thompsons
purchased property located at 399 East 7th Street in Wakefield, Nebraska (the
Wakefield Property) and, also in June, borrowed approximately $223,000 against the
property. See id. ¶¶ 43-46. Nearly six years later, on May 29, 2006, the Secretary of
the Treasury assessed over $50,000 against the Thompsons for underreporting their
income on 2002 and 2003 federal income tax returns. See id. ¶¶ 12, 15. Less than one

year later, on February 8, 2007, the Thompsons quitclaimed the Wakefield Property to
the defendant Maple Leaf Funding, a “Pure” Trust (Maple Leaf), for $1.00 “subject to the
United States’ federal tax liens for 2002 and 2003.” See id. ¶¶ 49-50. Since the
transfer, Harlan Thompson has operated a business on, paid the utilities and property
taxes for, paid the deeds of trust to land on, and, with his wife, exercised exclusive
possession of the Wakefield Property. See id. ¶¶ 54-56, 58-60. The Secretary of the
Treasury also assessed amounts for the 2005, 2006, and 2007 tax years, including
income taxes due and penalties for filing frivolous tax returns. Id.
Based on these facts, the Complaint alleges five claims against the Thompsons.
See id. ¶¶ 9-65. In the first three claims, the plaintiff seeks to reduce to judgment the
alleged joint and individual federal income tax debts and I.R.C. § 6702(a) penalties for
frivolous returns the Thompsons incurred between 2002 and 2007. See id. at 1 and
¶¶ 9-33, Claims I, II, and III. The final two claims seek entry of foreclosure of a tax lien
filed with the Dixon County, Nebraska, Register of Deeds against the Wakefield
Property to enforce the federal income tax liabilities. See id. ¶¶ 34-65, Claims IV and V.
As part of these two claims, the plaintiff contends the court should authorize the liens
against the Thompsons to attach to the Wakefield Property under 26 U.S.C. § 7403,
because Maple Leaf is a sham trust as the Thompsons are the true beneficial owners of
the Wakefield Property or the Thompsons fraudulently transferred the Wakefield
Property to Maple Leaf. See id. ¶¶ 49-69. On October 21, 2013, the Clerk of Court
entered default pursuant to Federal Rule of Civil Procedure 55(a), against the defendant
Maple Leaf for its failure to plead or otherwise defend in this case. See Filing No. 21.
The Thompsons deny liability on the plaintiff’s claims, asserting each tax
assessment against them in Claims I, II, and III is invalid except for the 2006 tax
assessment, which has since been paid in full by a wage garnishment on Diane
Thompson. See Filing No. 44 - Brief p. 2-4. Additionally, the Thompsons argue the
§ 6702(a) frivolous return penalties were not properly processed by the IRS making the
penalties invalid. See Filing No. 47 - Amended Letter p. 1. Finally, the Thompsons
assert Claims IV and V are premature and will not ripen unless the tax assessments
against them are reduced to a judgment. See Filing No. 44 - Brief p. 5-11.

2

On January 29, 2014, the plaintiff served interrogatories and requests for
production on the Thompsons. See Filing Nos. 30 and 32 - Certificates of Service. On
March 7, 2014, the plaintiff received the Thompsons’ responses to the discovery
requests. See Filing No. 41 - Lindgren Decl. ¶ 4 & Ex. A.1 The Thompsons’ responses
consisted of uniform objections on relevancy grounds to fifteen of the plaintiff’s
interrogatories and to twenty-eight of the plaintiff’s requests for production.2 See id. Ex.
A. The plaintiff and the Thompsons conferred by mail and by telephone regarding the
scope of the requested discovery, but were unable to reach an agreement. See id. Exs.
B & C.
On March 24, 2014, the plaintiff filed the instant motion to compel seeking
supplemental responses to discovery over the defendants’ relevancy objection. See
Filing No. 40. The plaintiff filed a brief (Filing No. 42), reply brief (Filing No. 46), and an
index of evidence (Filing No. 41) supporting its motion to compel. The plaintiff contends
each of its objected to interrogatories and requests are relevant to the claims in the
Complaint.

See Filing No. 42 - Brief p. 2, 4-5.

Specifically, the plaintiff seeks

information and documents related to (1) the Wakefield property, including its fairmarket value now and at the time of the transfer, ownership status, and the value and
cost of improvements; (2) Maple Leaf, including its formation history, financial assets,
and associated persons; and (3) the Thompsons, including their will or wills, tax
liabilities, involvement in other trust entities, finances, and financial accounts over which
they have exercised signature authority from January 1, 2003, to the present. See
Filing No. 42 - Brief p. 4-5. Additionally, the plaintiff seeks costs for filing its motion to
compel. See Filing No. 40.

1

Pursuant to the Civil Rules of the United States District Court for the District of Nebraska (Nebraska Civil
Rules) the party providing initial disclosures and responding to discovery “must also file a certificate of
service upon serving a response.” NECivR 26.1(a) 33.1(e), 34.1(b). Like discovery pursuant to Federal
Rule of Civil Procedure 26(a)(1), responses to discovery are served upon the opposing party without filing
the actual discovery with the court, unless it is made part of an index of evidence in support of a properly
filed motion.
2
See Filing No. 41 - Ex. A at Diane Thompson’s Answers to Interrogatories ¶¶ 7, 10, and 12-16; id. at
Harlan Thompson’s Answers to Interrogatories ¶¶ 8, 11, and 13-17; id. at Thompsons’ Response to
Requests for Production (Requests for Production) ¶¶ 7-34.
3

In response, the Thompsons filed a Motion to Quash3 (Filing No. 43) supported
by a brief (Filing No. 44) with an attached index of evidence. The Thompsons also filed
a letter (Filing No. 47) and amended letter (Filing No. 48) with additional evidence
attached.4 The Thompsons assert they have responded completely and accurately to
the discovery propounded by the plaintiff who fails to clarify any missing information or
improper response. See Filing No. 44 - Brief p. 5-11. Additionally, the Thompsons note
the interrogatories and requests for production seek information predicated on the
existence of valid tax assessments.

Id.

The Thompsons argue, since the plaintiff

cannot prove and the court has yet to determine the existence of valid tax assessments,
discovery into the Wakefield Property, Maple Leaf, and the Thompsons’ finances is
premature, at best, and irrelevant to the validity determination. Id.
Unable to obtain Maple Leaf’s financial information from the Thompsons for the
reasons stated above, on April 30, 2014, the plaintiff sent by certified mail notice to the
Thompsons of its intent to issue a subpoena on Bank of America seeking account
information about Maple Leaf. See Filing No. 51 - Lindgren Decl. ¶ 2 & Ex. 1. When it
had not received a written objection from the Thompsons by May 7, the plaintiff served
the subpoena on Bank of America on May 8, 2014. See id. - Lindgren Decl. ¶ 3. On
May 9, 2014, the Thompsons filed their Objection to Non-Party Subpoena of Bank of
America. See Filing No. 49. The Thompsons object to the plaintiff’s subpoena on
relevancy grounds identical to the arguments made opposing direct production of the
information and documents. See id. at 1; Filing No. 44 - Brief p. 4-11. In response, the
plaintiff requested Bank of America halt acting on the subpoena until the Thompsons’
objection is resolved by the court. See Filing No. 51 - Lindgren Decl. ¶ 4. The plaintiff
also filed a brief (Filing No. 50) and an index of evidence (Filing No. 51) in opposition to
3

The parties are reminded all documents filed shall comply with the Federal Rules of Civil Procedure and
the Nebraska Civil Rules. In opposing a motion, “the party must file a brief that concisely states the
reasons for opposing the motion and cites to supporting authority.” NECivR 7.1(b)(1)(A). The party
opposing a motion must not file a motion to quash or similarly titled responsive filing. NECivR
7.1(b)(1)(A). The court shall consider the Thompsons’ brief and index of evidence in support of their
motion to quash as a brief in opposition to the plaintiff’s motion to compel.
4
The Thompsons’ letters and attached evidence were not filed within the time period for opposing the
motion to compel (NECivR 7.1(b)(1)(B) and (1)(C)), nor do they contain the proper format (NECivR 7.1
and 10.1(a)(3)), as such they may be disregarded by the court. NECivR 7.1. Nevertheless, the
defendants state the letters were created in response to counsel for the plaintiff Ms. Lindgren’s April 2,
2014, Letter, which was attached at Filing No. 48 p. 5. All of these documents appear relevant to the
parties’ discovery dispute and will be considered for this purpose only.
4

the Thompsons’ objection. The plaintiff argues the Thompsons’ objection should be
stricken because the objection was procedurally improper as outside the method
required under the Nebraska Civil Rules.

See Filing No. 50 - Response p. 1, 4.

Additionally, the plaintiff contends the Thompsons lack standing to object to the
subpoena, which seeks relevant information. See id. at 1, 5-7. On May 28, 2014, the
Thompsons’ filed a Motion to Quash Plaintiff’s Subpoena Upon Bank of America (Filing
No. 52), arguing the May 9, 2014, subpoena was improperly issued without an
authorized signature. The plaintiff filed a brief (Filing No. 56) and an index of evidence
(Filing No. 57) in opposition to the motion.

ANALYSIS
A.

Motion to Compel
“Parties may obtain discovery regarding any nonprivileged matter that is relevant

to any party’s claim or defense.” Fed. R. Civ. P. 26(b)(1). “Broad discovery is an
important tool for the litigant, and so ‘[r]elevant information need not be admissible at
the trial if the discovery appears reasonably calculated to lead to the discovery of
admissible evidence.’” WWP, Inc. v. Wounded Warriors Family Support, Inc., 628
F.3d 1032, 1039 (8th Cir. 2011) (alteration in original) (quoting Fed. R. Civ. P.
26(b)(1)).

Accordingly, if information has any possibility of impacting either parties’

claim or defense it is relevant. See Cardenas v. Dorel Juvenile Group, Inc., 230
F.R.D. 611, 615-16 (D. Kan. 2005).
“When the discovery sought appears relevant on its face, the party resisting the
discovery has the burden to establish that the requested discovery does not come
within the scope of relevance.” Cardenas, 230 F.R.D. at 615-16. “Conversely, when
the relevancy of the discovery request is not readily apparent on its face, the party
seeking the discovery has the burden to show the relevancy of the request.” Id. at 616.
Mere speculation that information might be useful will not suffice; litigants seeking to
compel discovery must describe with a reasonable degree of specificity, the information
they hope to obtain and its importance to their case. See Oppenheimer Fund, Inc. v.
Sanders, 437 U.S. 340, 352 (1978).

5

The Thompsons do not contest the interrogatories and requests for production
seek discovery relevant to the plaintiff’s claims in the Complaint as a whole. Moreover,
the plaintiff has met its threshold burden of showing the interrogatories and requests for
production are relevant. The tax liability, financial information, and other information
sought about the Thompsons is directly relevant to the plaintiff’s claims seeking to
reduce the tax assessments to judgment and enforce the tax liens. Furthermore, the
information sought about Maple Leaf and the Wakefield Property, a defendant and
disputed property both explicitly named in the Complaint, directly relates to the plaintiff’s
attempt to determine the taxpayers’ assets and collect the taxpayers’ debt. Accordingly,
the burden shifts to the Thompsons to justify their objections to the discovery.
Rather than argue the irrelevance of any particular interrogatory or request for
production, the Thompsons contend the entire group of interrogatories and requests for
production are irrelevant based on the circumstances of the case, as opposed to the
face of the Complaint.

See Filing No. 42 - Brief.

The Thompsons argue the

government must prove the existence of a valid tax assessment prior to obtaining
discovery about the Thompsons’ assets. Id. The Thompsons provide a number of
arguments suggesting the plaintiff will not succeed in reducing the tax assessment to
judgment in Claims I, II, and III, such as the assessments were paid in part or
improperly processed. Id. For these reasons, the Thompsons maintain Claims IV and
V are improper until the court determines a valid assessment should be reduced to
judgment against them. See id. at 5-8. The court will not determine the merits of the
plaintiff’s claims during the pendency of a discovery motion. See Etienne v. Wolverine
Tube, Inc., 185 F.R.D. 653, 656 (D. Kan. 1999) (“A party does not have to prove a
prima facie case to justify a request which appears reasonably calculated to lead to the
discovery of admissible evidence.”).

In essence; however, the Thompsons seek to

bifurcate discovery and trial by staying discovery on Claims IV and V until the court
resolves liability on Claims I, II, and III.
The decision whether to bifurcate discovery is case specific. Rule 26(c)(1) of the
Federal Rules of Civil Procedure provides, in pertinent part, that “the court may, for
good cause, issue an order to protect a party or person from annoyance,
embarrassment, oppression, or undue burden or expense . . . including . . . forbidding
6

inquiry into certain matters, or limiting the scope of disclosure or discovery to certain
matters.” Similarly, Rule 42(b) authorizes the court to separate trial of issues or claims
“[f]or convenience, to avoid prejudice, or to expedite and economize.” The Thompsons
fail to substantiate any justification for delaying discovery for Claims IV and V. The
Thompsons fail to allege any undue burden, expense, or prejudice is associated with
the discovery. To the contrary, it appears discovery and trial of the issues together will
expedite and economize the parties’ and the court’s resources. Particularly in a case
where, as here, the matter is to be tried to the bench, rather than a jury.
The Thompson’s also argue the plaintiff’s requests require them to prove a
negative--that they have no valid tax assessments against them.

See id. at 10.

However the plaintiff’s requests do not require the Thompsons to prove anything. The
requests merely seek the information or documents the Thompsons may rely upon at
trial or in a dispositive motion to challenge the validity of the plaintiff’s tax assessments.
This requirement is not unusual, undue, or extraordinary in the process of normal
discovery proceedings, which allow the parties to prepare for a motion or trial on the
merits of the claims.
Accordingly, the plaintiff’s motion to compel will be granted.

The court finds

shifting the costs of the motion or of the response, pursuant to Fed. R. Civ. P. 37(a), is
not warranted in this case.

B.

Objection to Non-Party Subpoena
The Thompsons’ objection, based on relevance, is overruled for the reasons

stated above. The court notes, however the plaintiff failed to allow the Thompsons a fair
opportunity to object prior to issuing the subpoena. The Nebraska Civil Rules allow the
adverse party seven days “[a]fter receipt of the notice” to serve a written objection on
the noticing party. See NECivR 45.1 (emphasis added). The plaintiff alleges it served
notice to the Thompsons by mail on April 30, 2014. See Filing No. 51 - Lindgren Decl.
¶ 2 & Ex. 1. While there is no evidence in the record identifying when the Thompsons
received the notice, the earliest they could have received the notice is May 1, 2014.
Under this assumption, the Thompsons’ objection was due no earlier than May 12,
2014, based on seven days from receipt, plus an additional three days, since Federal
7

Rule of Civil Procedure 6(d) undoubtedly applies to service by mail. See NECivR 6(d).
Nevertheless, the Thompsons timely filed their objection with the court and the plaintiff
voluntarily suspended Bank of America’s obligation under the subpoena. The court has
resolved the parties’ dispute about the discoverability of the subpoenaed documents.
Under these circumstances, the court need not resolve the plaintiff’s argument about
whether the Thompsons have standing to object to Bank of America’s subpoena. Upon
consideration,

IT IS ORDERED:
1.

The United States of America’s Motion to Compel Discovery Responses

(Filing No. 40) is granted. The Thompsons shall have to on or before July 3, 2014, to
supplement their responses to the plaintiff’s January 29, 2014, Interrogatories and
Requests for Production of Documents, without objection. The Thompsons shall file a
certificate of service upon serving their responses.
2.

The Thompsons’ Motion to Quash United States’ Motion to Compel

Discovery Responses (Filing No. 43) is denied.
3.

The Thompsons’ Objection to Non-Party Subpoena to Issue on May 7,

2014 Upon Bank of America (Filing No. 49) is overruled. The plaintiff may re-issue the
subpoena.
4.

The Thompsons’ Motion to Quash Plaintiff’s Subpoena Upon Bank of

America (Filing No. 52), arguing the May 9, 2014, subpoena was improperly issued
without an authorized signature, is denied as moot because this order requires the
plaintiff to re-issue the subpoena.
Dated this 12th day of June, 2014.
BY THE COURT:
s/ Thomas D. Thalken
United States Magistrate Judge

8