United States of America v. Allen
Filing
40
ORDER granting 39 Motion for Sanctions. Signed by Magistrate Judge Terence P Kemp on 7/14/2014. (agm1)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF OHIO
EASTERN DIVISION
United States of America,
:
Plaintiff,
:
v.
:
John D. Allen, individually and
doing business as
Allen & Associates,
Case No. 2:12-cv-1034
:
JUDGE GEORGE C. SMITH
Magistrate Judge Kemp
:
Defendants.
OPINION AND ORDER
This matter is before the Court on a renewed motion for
sanctions filed by Plaintiff the United States of America.
39).
(Doc.
For the following reasons, the motion will be granted, and
a default will be entered as to Mr. Allen’s liability.
I.
Background
Over one year ago, on June 25, 2013, the United States filed
a motion to compel Mr. Allen to respond to its first set of
interrogatories and requests for production of documents, first
set of requests for admission, and second set of interrogatories.
(Doc. 20).
The Court granted the motion and ordered Mr. Allen to
provide the requested discovery to the United States within
fourteen days.
(Doc. 24).
The Court also warned Mr. Allen that
Rule 37(b)(2)(A) authorizes the imposition of sanctions,
including granting a default judgment, if a party fails to obey
an order to provide or permit discovery.
On December 17, 2013, the United States filed a motion for
sanctions against Mr. Allen based on his failure to comply with
this Court’s order compelling him to respond to interrogatories
and requests for production of documents.
(Doc. 34).
In that
motion, the United States asserted that Mr. Allen had not
provided the requested discovery despite multiple requests and
this Court’s order.
Consequently, the United States sought an
entry of default against Mr. Allen as a sanction.
Mr. Allen did
not file an opposition to that motion for sanctions.
In its Opinion and Order on the motion for sanctions issued
on March 5, 2014 (Doc. 35), the Court first considered the
document requests numbered 1 through 7.
The Court found that, in
response to Mr. Allen’s claim that he had no responsive
documents, the United States failed to satisfy its burden of
demonstrating that the requested documents indeed existed and
were being improperly withheld.
Consequently, the Court did not
award sanctions for Mr. Allen’s failure to produce documents in
response to those requests.
As to the document requests numbered 8 and 9, the Court
found that Mr. Allen’s objections to those requests were
untimely.
The Court noted, however, that even if the objections
were timely, Mr. Allen could not withhold production of
responsive documents based upon those objections.
Consequently,
the Court ordered Mr. Allen to produce any documents responsive
to those requests within twenty-eight days of the issuance of the
Opinion and Order.
Next, the Court found that Mr. Allen failed to make timely
objections to the interrogatories.
The Court noted again,
however, that even if it were to consider Mr. Allen’s objections
on their merits, it would overrule them.
Accordingly, the Court
ordered Mr. Allen to provide the interrogatory responses within
twenty-eight days of the issuance of the Opinion and Order.
For
purposes of reference, the Court notes that it ordered Mr. Allen
to produce adequate discovery responses to the following
interrogatories:
1. Identify all Customers for whom you or Allen &
Associates filed, prepared, and/or signed Form 1040
federal income tax returns or Form 1040X amended federal
income tax returns and for whom you or Allen & Associated
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[sic] advised or assisted with the preparation of Form
1040 federal income tax returns or Form 1040X amended
federal income tax returns, from January 1, 2006 to the
present. For each Customer, identify: the name of the
person who filed, prepared, and/or signed the federal tax
return, whether it was you, your employee, an employee of
Allen & Associates, or the Customer; the address,
telephone number, and social security number or employer
identification number of the individual or entity; and
the tax year of the federal tax return(s).
2. Identify all Customers for whom you or Allen &
Associates prepared and/or filed, or advised or assisted
with the preparation and/or filing of, Forms 4852, Forms
1099-R, Forms W-2, or Forms W-4 with the IRS from January
1, 2006 to the present. For each Customer, identify:
the name of person who filed, prepared, and/or signed the
Form 4852, Form 1099-R, Form W-2, or Form W-4, whether it
was you, your employee, or an employee of Allen &
Associates, or the Customer; the address, telephone
number, and social security number or employer
identification number of the individual or entity; and
the tax year of the Form 4852, Form 1099-R, Form W-2, or
Form W-4.
3. Identify all individuals or entities to whom or to
which you or Allen & Associates marketed, promoted, or
sold the tax arrangements described in the Complaint and
identified as “Scheme 1: Tax Returns Reporting ‘None’ for
Income and Tax,” “Scheme 2: Tax Returns Reporting Bogus
Itemized Deductions to Offset Income,” and “Scheme 3:
Frivolous Amended Tax Returns Claiming That Wages Are
Non-Taxable,” since January 1, 2006, whether or not they
participated in the tax arrangement or whether or not you
or Allen & Associates filed, prepared, and/or signed
federal tax returns.
For each individual or entity,
identify: which arrangement you or Allen & Associates
marketed, promoted, or sold to the individual or entity;
when you or Allen & Associates marketed, promoted, or
sold the program, product, or arrangement to the
individual or entity; the documents provided to the
individual or entity; the name of the person who
marketed, promoted, or sold the arrangement, product, or
arrangement [sic]; and the address, telephone number,
[sic] and the name, address, phone number, and email
address of the individuals or entities to whom you or
Allen & Associates marketed, promoted, or sold the
program, product, or arrangement.
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4. Identify all of your employees and employees of Allen
& Associates from January 1, 2006 to the present.
Include their name, home address, telephone, position(s)
at Allen & Associates, duties performed for you or in
their position(s) at Allen & Associates, and dates of
employment for you or at Allen & Associates.
5. Identify all partners, shareholders, managers, and/or
directors of Allen & Associates from January 1, 2006 to
the present.
Include their name, home address,
telephone, position(s) at Allen & Associates and dates
each person held such position.
6. Identify your most recent employer(s), including the
positions that you have held since January 1, 2006, and
your duties in each position.
7. Describe in detail the ownership and managerial
structure of Allen & Associates, including all positions
that you have held at Allen & Associates, and the duties
and responsibilities for each position you have held.
Include the dates that you held each position and, if you
oversaw employees in any position, the names and
positions of the employees acting under your authority.
8. Describe how you and/or Allen & Associates were
compensated for filing, preparation, and/or signing of
federal tax returns for Customers from January 1, 2006 to
the present. For each Customer for whom you and/or Allen
& Associates filed, prepared, signed, and/or advised or
assisted with the preparation of federal tax returns
since January 1, 2006, your answer should include the
amount of payment received, a description of the services
provided for such payment, how you calculated such
payment, and when the individual or entity made the
payment.
9. Identify any and all steps you have taken to determine
whether the federal tax returns filed, prepared, signed
by you or Allen & Associates, and tax returns which you
or Allen & Associates advised or assisted with the
preparation of, described in interrogatory number 1
above, are lawful, including the name of any publication
you have consulted, the specific relevant information or
opinions contained in the publication, the identity of
any person with whom you have conferred, the specific
information or opinions provided by that person, any job
titles held by that person, and the basis of that
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person’s knowledge.
10. Describe in detail how you learned to prepare returns
utilizing tax arrangements described in the Complaint and
identified as “Scheme 1: Tax Returns Reporting ‘None’ for
Income Tax,” “Scheme 2: Tax Returns Reporting Bogus
Itemized Deductions to Offset Income,” and “Scheme 3:
Frivolous Amended Tax Returns Claiming That Wages Are
Non-Taxable,” including identifying the individuals,
entities, publications, software, promotional materials,
or other tax law or tax preparation material you
consulted.
11. Identify by date, type of communication, location (if
it occurred in person), and name and contact information
of the Customer on whose behalf you were communicating,
all instances in which you have communicated with any IRS
employee relating to your and/or Allen & Associates’s
preparing, filing, and/or signing of federal tax returns,
and your advising and assisting with the preparation of
federal tax returns, since January 1, 2006.
12. Please describe in detail all education or training
you have received on the subject of federal income
taxation.
* * *
1. If you deny any of the United States’ First Set of
Requests for Admission to John Allen, for each denial and
with supporting facts the basis for your denial.
Based on the foregoing, the Court denied the motion for
sanctions to the extent that it sought a default judgment, but
granted it to the extent that it sought further responses to
discovery.
In response to this Court’s order, Mr. Allen filed a
document entitled “Defendant’s Discovery Responses.”
That
document provides the following:
As to Plaintiff’s interrogatories, Mr. Allen has not ever
“filed, prepared and/or signed” any federal income tax
forms for anyone. Such forms simply do not exist!
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Mr. Allen has not ever promoted any “tax schemes” as
alleged by Plaintiff. Such “tax schemes” simply do not
exist!
The only thing Mr. Allen has done, which is not illegal
and has been accepted by the IRS, is agreed to be the
power of attorney for 2 or 3 of his friends in order to
help them with their tax matters to the best of Mr.
Allen’s ability.
(Doc. 37 at 1). In addition, Mr. Allen states that all of his
legal materials had been confiscated and, consequently, he is
unable to send his responses to the government’s counsel.
Finally, Mr. Allen “prays that this will end the malicious and
unfounded harassment and intimidation being inflicted by
Plaintiff and its attorneys.” Id.
In response to Mr. Allen’s claim that all of his legal
materials had been confiscated, the United States filed “a notice
of mailing documents” on March 31, 2014.
(Doc. 38).
In that
notice, the United States stated that it mailed the following
documents to Mr. Allen: (1) the United States’ First Set of
Interrogatories and Requests for Production of Documents; (2) the
United States’ Second Set of Interrogatories; (3) Mr. Allen’s
responses to the interrogatories and requests for production of
documents; and (4) the Court’s March 5, 2014 Opinion and Order.
On May 8, 2014, the United States filed its renewed motion
for sanctions.
The United States again seeks the entry of a
default judgment against Mr. Allen based upon his failure to
comply with the second order requiring him to respond adequately
to its interrogatories.
Mr. Allen has not responded to the
renewed motion.
II. Discussion
This Court set forth the legal standard relevant to a motion
for sanctions in its previous Opinion and Order.
Stated again
for purposes of reference, Fed.R.Civ.P. 37(b) authorizes
sanctions for a party’s failure to obey an order requiring
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discovery. The strongest sanction available to address discovery
abuses is the entry of a default judgment against a defendant or
an order of dismissal against a plaintiff. See Quinn v. Kennedy,
2008 WL 4145445,*1 (W.D. Mich. Aug. 20, 2008), citing Grange Mut.
Cas. Co. v. Mack, 270 F. App’x 372, 376 (6th Cir. 2008). In the
Sixth Circuit, courts are to consider four factors including “(1)
whether the party’s failure to cooperate in discovery is due to
willfulness, bad faith, or fault; (2) whether the adversary was
prejudiced by the party’s failure to cooperate in discovery; (3)
whether the party was warned that failure to cooperate could lead
to the sanction; and (4) whether less drastic sanctions were
first imposed or considered.” Id., citing Freeland v. Amigo, 103
F.3d 1271, 1277 (6th Cir. 1997).
Here, all four factors weigh heavily in favor of the entry
of a default as to Mr. Allen’s liability. Turning to the first
factor, Mr. Allen has repeatedly violated this Court’s discovery
orders and failed to provide adequate responses to the discovery.
As this Court observed in its March 5, 2014 Opinion and Order,
Mr. Allen has continuously refused to participate meaningfully in
discovery from the outset of this litigation. This Court
reiterates that, although Mr. Allen is acting without counsel,
this does not excuse him from producing discovery. See In re
Family Resorts of Am., Inc., 1992 WL 174539, *3 (6th Cir. July
24, 1992). Further, this Court has not been presented with any
argument or evidence suggesting that Mr. Allen is unable to
comply with the discovery requests. Simply stated, Mr. Allen has
provided no legitimate basis for his failure to comply. Because
Mr. Allen’s continued course of conduct can only be characterized
as wilful, the Court finds that the first factor weighs heavily
in favor of the entry of a default as to Mr. Allen’s liability.
Second, the United States has suffered prejudice. More
specifically, Mr. Allen’s failure to provide adequate responses
to the requested discovery has deprived the United States of
information that would allow it to pursue its claims. For
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example, the United States notes that it has been deprived of the
information “necessary to identify Allen’s customers, who likely
have information relevant to Allen’s activities alleged in the
complaint.” (Doc. 39 at 3). For these reasons, the Court finds
that the second factor also weighs heavily in favor of the entry
of a default as to Mr. Allen’s liability.
Third, this Court has warned Mr. Allen twice that his
failure to cooperate could result in sanctions, including the
entry of a default judgment against him. Mr. Allen has
nevertheless failed to comply with this Court’s orders.
Consequently, the third factor also weighs heavily in favor of
the entry of a default as to Mr. Allen’s liability.
Finally, this Court has considered and imposed less drastic
sanctions, and Mr. Allen has continued his failure to comply. It
has been over a year since the United States first filed a motion
with respect to Mr. Allen’s refusal to participate in the
discovery process. At this juncture, it is logical to conclude
that any further order to compel Mr. Allen to participate would
be fruitless.
Based on the foregoing, the Court will grant the renewed
motion for sanctions. This Court is mindful that the entry of a
default is a strong sanction that should be utilized only in
extreme cases. However, under these circumstances, the Court
finds that the appropriate sanction is to strike Mr. Allen’s
answer and enter a default as to liability. Accordingly, the
well-pleaded factual allegations of the complaint pertaining to
liability will be taken as true. See Microsoft Corp. v. Computer
Care Ctr., 2008 WL 4179653, *6 (E.D.N.Y. Sept. 10, 2008).
Whether the facts in the complaint indeed are well-pleaded or
support the entry of a judgment for injunctive and other relief
is a separate matter for the consideration by the District Judge.
See id. That issue may be preserved by way of a motion for
judgment on the complaint.
III. Conclusion
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Based upon the foregoing, the renewed motion for sanctions
filed by the United States (Doc. 39) is granted. Pursuant to
Fed.R.Civ.P. 37(b)(2)(A), a default is entered as to Mr. Allen’s
liability.
Consequently, the complaint in this case stands as
undisputed, and the answer shall be stricken.
Whether the facts
in the complaint are well-pleaded or support the entry of a
judgment for injunctive and other relief is a separate matter for
the consideration by the District Judge.
IV. Motion for Reconsideration
Any party may, within fourteen days after this Order is
filed, file and serve on the opposing party a motion for
reconsideration by a District Judge.
28 U.S.C. §636(b)(1)(A),
Rule 72(a), Fed. R. Civ. P.; Eastern Division Order No. 91-3, pt.
I., F., 5.
The motion must specifically designate the order or
part in question and the basis for any objection.
Responses to
objections are due fourteen days after objections are filed and
replies by the objecting party are due seven days thereafter.
The District Judge, upon consideration of the motion, shall set
aside any part of this Order found to be clearly erroneous or
contrary to law.
This order is in full force and effect, notwithstanding the
filing of any objections, unless stayed by the Magistrate Judge
or District Judge.
S.D. Ohio L.R. 72.3.
/s/ Terence P. Kemp
United States Magistrate Judge
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