United States of America v. Cannon et al

Filing 9

TEMPORARY RESTRAINING ORDER; granting 8 Motion for TRO Signed by Honorable J Michelle Childs on 3/11/2014.(asni, )

IN THE UNITED STATES DISTRICT COURT FOR THE
DISTRICT OF SOUTH CAROLINA
AIKEN DIVISION
UNITED STATES OF AMERICA,

)
)
Plaintiff,
)
)
v.
)
)
DAVID G. CANNON,
)
MARGARET A. CANNON, and
)
SOUTH CAROLINA DEP’T OF REVENUE, )
)
Defendants.
)
_______________________________________)

Civil Action No. 1:14-cv-00755-JMC

TEMPORARY RESTRAINING ORDER
This matter comes before the Court on the United States’ motion for a temporary
restraining order. Upon consideration of the motion, memorandum of law in support thereof, the
complaint, and the applicable law, the Court finds that the United States has demonstrated that a
temporary injunction is necessary and appropriate in this case.

In accordance with the

requirements of Fed. R. Civ. P. 65(d), the reasons for granting the requested relief and the
specific terms of the injunction are set forth below.
The United States has brought suit to reduce to judgment the joint federal income tax
liabilities of David and Margaret Cannon for the 2005 and 2006 tax years and to foreclose
federal tax liens on Margaret Cannon’s stock of the Bay Island Hermitage, S.A. Upon filing its
complaint, the United States immediately moved for a temporary restraining order against the
Cannons to prevent the Cannons from encumbering, liquidating, transferring or otherwise
disposing of Margaret Cannons’ stock of the Bay Island Hermitage or any of the real property
owned by the Bay Island Hermitage, including, but not limited to, the real property located at 59
Lighthouse Estates, Roatán, Bay Islands, Honduras (the “Lighthouse Estates” property).

A temporary restraining order is a drastic remedy intended to preserve the status quo until
the Court can hold a hearing on motion for a preliminary injunction. Hoechst Diafoil Co. v. Nan
Ya Plastics Corp., 174 F.3d 411 (4th Cir. 1999). To justify a temporary restraining order, the
movant must demonstrate that it will suffer immediate and irreparable injury if the opponent is
notified of the action and certify why notice of the motion should not be required. Fed. R. Civ.
P. 65(b)(1). In determining whether the requirements of Rule 65(b)(1) are met, courts apply
same test that is applied in determining whether a preliminary injunction is appropriate. Thus, a
court will only grant a temporary restraining order if the movant demonstrates (1) that he is
likely to succeed on the merits; (2) that he is likely to suffer irreparable harm if the requested
relief is not granted; (3) that the balance the equities tips in his favor; and (4) that the requested
relief is in the public interest. Winter v. Nat. Resources Defense Council, Inc., 555 U.S. 7, 20
(2008).
Upon review of all the filings in this matter, the Court finds that the United States has met
its burden. First, the United States is likely to succeed on the merits of this matter because there
is little, if any, doubt that the Cannons have outstanding federal income tax liabilities for the
2005 and 2006 tax years. In addition, the United States has demonstrated that it is entitled to
foreclose its federal tax liens on Margaret Cannon’s stock of the Bay Island Hermitage in order
to collect the Cannons’ liabilities.
Second, through the Declaration of Richard Freeman, the United States has demonstrated
that it is likely to suffer immediate and irreparable harm if a temporary restraining order is not
entered. As shown in the Freeman Declaration, Margaret Cannon’s stock is the only asset that
can be used to satisfy the Cannons’ unpaid tax liabilities. The Bay Island Hermitage owns the
Lighthouse Estates property, which is currently for sale for over $1.3 million. Although the

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proceeds from this sale are likely to satisfy the Cannons’ tax liabilities, the Cannons have
informed the IRS that they will not use the sales proceeds to pay their unpaid taxes. If this relief
is not granted, the risk of the Cannons selling the Lighthouse Estates property – perhaps even at a
significantly reduced price – and dissipating the proceeds will substantially increase. In addition,
because the property against which the United States seeks to enforce its lien is corporate stock,
the tax lien is not valid against any subsequent purchaser unless he or she has actual knowledge
of the tax lien. 26 U.S.C. § 6323(b). Thus, if the Lighthouse Estates property is sold or the
Cannons encumber, liquidate, transfer, or otherwise dispose of Mrs. Cannon’s stock of the Bay
Island Hermitage, the United States will lose its ability to enforce its tax lien to collect the
Cannons’ liability and suffer immediate and irreparable damage.
Third, the balance of the equities tips in favor of the United States because the requested
relief only preserves the status quo. The temporary restraining order will not harm the Cannons
in any way and will ensure that the United States does not suffer the immediate and irreparable
injury that is likely to result if this relief is not granted.
Fourth, the public interest is served by the requested relief. It is a paramount interest of
the public to preserve the United States’ ability to collect valid tax debts.

The requested

temporary restraining order serves this interest by enforcing the tax laws and preventing the
Cannons from defeating the collection of their valid tax debts for the 2005 and 2006 tax years.
Finally, based on the record before the Court, the Court finds that notice of the requested
relief is not required. Counsel for the United States certified that notice of this action should not
be required because the Cannons likely would encumber, liquidate, transfer, or otherwise dispose
of Margaret Cannon’s stock of the Bay Island Hermitage and/or the Lighthouse Estates property.
The United States’ fear that the Cannons may encumber, liquidate, transfer, or otherwise dispose

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of Margaret Cannon’s stock of the Bay Island Hermitage and the Lighthouse Estates property is
well-founded as the Cannons have informed the IRS of their intent to dissipate any sales
proceeds from the Lighthouse Estates property.
Accordingly, it is
ORDERED that the United States’ Motion for Temporary Restraining Order is
GRANTED; it is further
ORDERED that defendants David G. Cannon and Margaret A. Cannon and their agents,
officers, servants, employees, attorneys, nominees, and all persons in active concert with them
are hereby enjoined and restrained from:
(1)

encumbering, liquidating, transferring, or otherwise disposing of Margaret A.

Cannon’s corporate stock of the Bay Island Hermitage, S.A.; or
(2)

encumbering, liquidating, transferring, or otherwise disposing of any of the real

property owned by the Bay Island Hermitage, S.A., including, but not limited to, the real
property located at 59 Lighthouse Estates, Roatán, Bay Islands, Honduras.
It is further ORDERED that this Temporary Restraining Order will remain in effect for a
period of 14 days after entry, unless within that time this order is extended for good cause shown
or unless the Cannons consent that this order may be extended for a longer period; it is further
ORDERED that the United States must serve a copy of this order and all pleadings in
this action upon the Cannons no later than Friday March 14, 2014, and file a certificate of
service with the Court; and it is further

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ORDERED that hearing on whether the Court should enter a preliminary injunction will
be held at the United States Courthouse in Columbia South Carolina, on Friday March 21, 2014
at 10:00 AM.
DONE AND ORDERED on March 11, 2014.

s/J. Michelle Childs
J. MICHELLE CHILDS
UNITED STATES DISTRICT JUDGE

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