UNITED STATES OF AMERICA v. LANZ
Filing
41
OPINION. Signed by Judge Esther Salas on 12/31/19. (jc, )
Not for Publication
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
____________________________________
:
UNITED STATES OF AMERICA,
:
Civil Action No. 16-1694 (ES) (MAH)
:
Plaintiff,
:
v.
:
OPINION
:
WALTER LANZ,
:
:
Defendant.
:
____________________________________:
SALAS, DISTRICT JUDGE
Before the Court is plaintiff United States of America’s (“Plaintiff”) motion for default
judgment against defendant Walter Lanz (“Defendant”). (D.E. No. 39). The Court has considered
Plaintiff’s submissions and decides the matter without oral argument. See Fed. R. Civ. P. 78(b);
L. Civ. R. 78.1(b). For the following reasons, the Court GRANTS the motion.
I.
Background
On March 28, 2016, Plaintiff commenced the instant action to collect the penalties assessed
against Defendant under 31 U.S.C. § 5321(a)(5) for failure to report his interest in a foreign bank
account from 2006 through 2008. (D.E. No. 1 (“Complaint” or “Compl.”) at 1). The Complaint
alleges that Defendant resided in the United States from approximately the 1970s until 2010, and
subsequently moved to Austria. (Id. ¶ 8). In the 1970’s Defendant opened a bank account at UBS
AG in Switzerland (the “Account”). (Id. ¶ 9). “During 2006, 2007, and 2008, the aggregate
amount in the Account exceeded $10,000 in U.S. currency,” and the account generated income.
(Id. ¶¶ 12 & 13). Defendant, however, did not report his investment income or interest in the
Account on his income tax return as required by the reporting requirements of 31 U.S.C. § 5314.
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(Id. ¶¶ 13–15 & 20–21). The Account remained open until 2008 when Defendant transferred the
funds to another account under the name Chiffre Mozart with another bank in Switzerland,
Thurgauer Kantonalbank. (Id. ¶¶ 10 & 11).
Based on these facts, Plaintiff filed the Complaint on March 28, 2016, and Defendant was
served through letters rogatory in December 2018. Defendant failed to plead or otherwise defend
in the action, and the Clerk of Court entered default as to Defendant on April 10, 2019. (See
Docket Entry dated Apr. 10, 2019). The next day, the Court issued an Order providing Plaintiff
with instructions for filing any motion for default judgment. (D.E. No. 37). Plaintiff filed the
instant motion for default judgment on May 23, 2019 (D.E. No. 39), and Defendant did not respond
to the motion.
II.
Legal Standard
A district court may enter default judgment against a party who has failed to plead or
otherwise respond to the action filed against him. Fed. R. Civ. P. 55(b)(2). To obtain a default
judgment, a plaintiff must first request entry of default by the Clerk of Court. See Nationwide Mut.
Ins. Co. v. Starlight Ballroom Dance Club, Inc., 175 F. App’x 519, 521 n.1 (3d Cir. 2006). Once
default is entered, a plaintiff seeking default judgment must then file a motion with the district
court requesting the relief.
“[E]ntry of a default judgment is left primarily to the discretion of the district court.” Hritz
v. Woma Corp., 732 F.2d 1178, 1180 (3d Cir. 1984). “Before entering default judgment, the Court
must address the threshold issue of whether it has personal jurisdiction and subject matter
jurisdiction over the parties.” Prudential Ins. Co. of Am. v. Bramlett, No. 08-0119, 2010 WL
2696459, at *1 (D.N.J. July 6, 2010). Then, “the Court must determine (1) whether there is
sufficient proof of service; (2) whether a sufficient cause of action was stated; and (3) whether
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default judgment is proper.” Teamsters Health & Welfare Fund of Phila. & Vicinity v. Dubin
Paper Co., No. 11-7137, 2012 WL 3018062, at *2 (D.N.J. July 24, 2012) (internal citations
omitted). To determine whether granting default judgment is proper, the Court must make factual
findings as to “(1) whether the party subject to default has a meritorious defense, (2) the prejudice
suffered by the party seeking default, and (3) the culpability of the party subject to default.” Doug
Brady, Inc. v. N.J. Bldg. Laborers Statewide Funds, 250 F.R.D. 171, 177 (D.N.J. 2008). In making
these determinations “the factual allegations of the complaint, except those relating to the amount
of damages, will be taken as true.” DIRECTV, Inc. v. Pepe, 431 F.3d 162, 165 n.6 (3d Cir. 2005)
(quoting Comdyne I, Inc. v. Corbin, 908 F.2d 1142, 1149 (3d Cir. 1990)). “While the court may
conduct a hearing to determine the damages amount, Fed. R. Civ. P. 55(b)(2), a damages
determination may be made without a hearing as long as the court ensures that there is a basis for
the damages specified in the default judgement.” Days Inns Worldwide, Inc. v. Panchal, No. 151459, 2015 WL 5055318, at *2 (D.N.J. Aug. 25, 2015) (internal quotation marks and alterations
omitted).
III.
Discussion
A. Jurisdiction
First, the Court is satisfied that it has jurisdiction to enter default judgment. District courts
have original jurisdiction over all civil actions arising under the Constitution, laws, or treaties of
the United States. 28 U.S.C. § 1331. This matter arises under the reporting requirements contained
in 31 U.S.C. § 5314, and therefore, this Court has original subject matter jurisdiction under
28 U.S.C. § 1331.
This Court also has personal jurisdiction over the Defendant. Under the Federal Rules of
Civil Procedure, personal jurisdiction over non-resident defendants may only be exercised to the
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extent that it is authorized by the laws of the state in which the federal court sits. O’Connor v.
Sandy lane Hotel Co., 496 F.3d 312, 316 (3d Cir.2007); Fed. R. Civ. P. 4(k). New Jersey’s longarm statute permits service on a non-resident defendant to the extent that it is permitted by the
Constitution. N.J. Ct. R. 4:4–4; see also Carteret Sav. Bank, FA v. Shushan, 954 F.2d 141, 145
(3d. Cir.1992).
Accordingly, a court may exercise personal jurisdiction over a non-resident
defendant if the defendant has “certain minimum contacts with [New Jersey] such that the
maintenance of the suit does not offend traditional notions of fair play and substantial
justice.” O’Connor, 496 F.3d at 316 (quoting Int’l Shoe Co. v. Washington, 326 U.S. 310, 316
(1945)). O’Connor outlines a three-part test for determining whether a defendant has sufficient
minimum contacts: (i) whether a defendant purposefully directed his activities at the forum; (ii)
whether the litigation arises out of or relates to at least one of those activities; and (iii) whether
exercise of jurisdiction otherwise comports with notions of fair play and substantial justice. Id. at
317. Here, these requirements are satisfied because Defendant lived in Cliffside Park, New Jersey
when the alleged penalties accrued. (Compl. ¶ 4).
B. Proper Service
Second, the Court finds that Defendant was properly served. Plaintiff attempted to serve
Defendant at his address of record in New Jersey but learned that he currently resides in Austria.
(See generally D.E. No. 4). Thereafter, Plaintiff filed a motion for issuance of letters rogatory
(D.E. No. 16), and the Court granted the motion on April 6, 2017, requesting assistance from the
Austrian judicial authorities to serve Defendant. (D.E. No. 19). On March 14, 2019, Plaintiff filed
a letter with this Court indicating that Defendant was served on December 24, 2018. (D.E. Nos.
33 & 35).
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C. Sufficient Cause of Action
Third, the Court finds that the Complaint states a sufficient cause of action. Plaintiff alleges
that Defendant violated the reporting requirements of 31 U.S.C. § 5314, as implemented under 31
C.F.R. § 1010.350 and 31 C.F.R. § 1010.306(c), for calendar years 2006, 2007, and 2008. (Compl.
¶ 20). As Plaintiff explains, “[a]ll citizens and residents of the United States who have a financial
interest in, or signatory or other authority over, any foreign financial account that had a maximum
value greater than $10,000 during the calendar year are required to file an annual report disclosing
the existence of each account.” (Compl. ¶ 5 (citing 31 U.S.C. § 5314 & 31 C.F.R. § 1010.350)).
That annual report—known as a Report of Foreign Bank and Financial Accounts (“FBAR”)—is
due no later than June 30th of the year following the calendar year.
(Id. ¶ 6 (citing 31
C.F.R. § 1010.306(c)). Plaintiff alleges that Defendant was subject to these reporting requirements
because Defendant was a U.S. citizen who held a foreign bank account, and the aggregate amount
in that account exceeded $10,000 in U.S. currency during 2006, 2007, and 2008. (Compl. ¶¶ 9–
12). Plaintiff further alleges that Plaintiff failed to (i) report the income generated in the Account
on his federal income tax returns; (ii) file an FBAR as required for 2006, 2007, and 2008; and (iii)
report having an interest in a foreign bank account on Schedule B of his income tax returns for at
least 2006 and 2008. (Id. ¶¶ 13–15). Based on these allegations, the Court finds that Plaintiff has
sufficiently stated a cause of action for failure to comply with the reporting requirements of 31
U.S.C. § 5314.
Moreover, the Court finds that the Complaint provides sufficient basis for the Court to
determine that Defendant’s failure to report was willful. Willfulness covers both knowing and
reckless violations, and “may be proven through inference from conduct meant to conceal or
mislead sources of income or other financial information.” United States v. Williams, 489 F. App’x
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655, 658 (4th Cir. 2012). Here, Plaintiff alleges several facts suggesting that Defendant acted
willfully: (i) Defendant took steps to hide his ownership of the Account by telling UBS AG to hold
all correspondence relating to the Account (Compl. ¶ 9); (ii) Defendant falsely told the IRS twice
that he did not own a foreign bank account, and signed an affidavit stating that he did not have a
foreign bank account during 2008 (id. ¶ 17); and (iii) Defendant eventually transferred the Account
that he held in his name to another bank and put the Account in the name of another person (id.
¶¶ 10–11). These actions suggest that Defendant acted willfully in failing to report his ownership
and interest in the Account. See United States v. Brandt, No. 17-80671, 2018 WL 1121466, at *4
(S.D. Fla. Jan. 24, 2018) (finding a willful reporting violation under similar circumstances).
D. Propriety of Default Judgment
Fourth, the Court finds that default judgement is proper in this action. To determine
whether granting default judgment is proper, the Court must make “factual findings as to: (1)
whether the party subject to default has a meritorious defense, (2) the prejudice suffered by the
party seeking default, and (3) the culpability of the party subject to default.” Doug Brady, Inc.,
250 F.R.D. at 177. Here, the current record does not indicate any meritorious defense. See Malibu
Media, LLC v. Deleon, No. 15-3855, 2016 WL 3452481, at *3 (D.N.J. June 20, 2016) (“The Court
may presume that a defendant who has failed to plead, defend, or appear has no meritorious
defense.”). Moreover, Plaintiff has been prejudiced by Defendant’s failure to answer because
Plaintiff has been prevented from seeking relief. See Gowan v. Cont’l Airlines, Inc., No. 10-1858,
2012 WL 2838924, at *2 (D.N.J. July 9, 2012) (finding that the plaintiff would suffer prejudice if
the court did not enter default judgment because the plaintiff “has no other means of seeking
damages for the harm caused by Defendant”). Finally, with respect to the issue of whether default
was the result of culpable conduct by Defendant, Defendant has not participated in the litigation
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despite being served with the Complaint approximately one year ago. Thus, Defendant is culpable
for defaulting in this case.
E. Damages
Plaintiff attaches certified forms to its motion for default judgment to prove its damages
for willful violations of the reporting requirement. (D.E. Nos. 39-3 & 39-4). The attachments
show that a delegate of the Secretary of Treasury made an assessment of civil penalties against
Defendant under 31 U.S.C. § 5321(a)(5) for the years 2006, 2007, and 2008 in the amounts of
$198,360, $198,360, and $100,000, respectively. (D.E. No. 39-3 at 2–4). In addition to the
principal penalty assessed, the attachments show that Plaintiff is also owed a late-payment penalty
in the amount of $41,152.91, and accrued interest in the amount of $6,858.82 as of August 19,
2015. (Id. at 6). Thus, these documents show that in total, as of August 19, 2015, Plaintiff was
owed $544,731.73. (Id.).
Based on the statements and documents provided by Plaintiff, the Court finds that there is
a basis for the damages specified in the default judgement motion, Days Inns Worldwide, 2015
WL 5055318, at *2, and Plaintiffs are entitled to $544,731.73 for the penalties assessed against
Defendant under 31 U.S.C. § 5321(a)(5), accrued interest on such penalties, late payment penalties,
and further statutory additions as allowed by law from August 19, 2015 to the date of payment.
IV.
Conclusion
For the foregoing reasons, the Court GRANTS Plaintiff’s motion for default judgment
against Defendant. An appropriate Order accompanies this Opinion.
s/Esther Salas
Esther Salas, U.S.D.J.
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