United States of America (IRS) v. Stone et al

Filing 33

ORDER STRIKE PLEADINGS re 6 Answer to Complaint filed by David J Stone, 7 Answer to Complaint filed by Jacqueline Wallace, ORDER Striking Pleading, ORDER GRANTING 32 MOTION to Strike 6 Answer to Complaint, 7 Answer to Complaint United States' Motion to Strike the Answers of Defendants David Stone and Jacqueline Wallace and to Enter Default Judgment Agaisnt David Stone, or, in the Alternative, Moti filed by United States of America (IRS). Signed by Judge Xavier Rodriguez. (wg)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF TEXAS
SAN ANTONIO DIVISION
UNITED STATES OF AMERICA,
Plaintiff,
VS.
DAVID J. STONE, ET AL.,
Defendants.

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Civil Action No. SA-15-CA-196-XR

ORDER
On this date, the Court considered the United States’ Motion to Strike the Answers of
Defendants David Stone and Jacqueline Wallace and to Enter Default Judgment Against David
Stone, or, In the Alternative, Motion to Re-Open Discovery and Continue all Remaining Deadlines
(docket no. 32). Defendants have not filed a response.
The United States initiated this lawsuit on March 16, 2015. The United States seeks to
reduce to judgment against Stone unpaid federal tax liabilities, foreclose federal tax liens against and
sell certain property located in Bexar County, Texas, owned by Stone, and obtain, if appropriate, the
10% surcharge under the Federal Collections Procedure Act. Defendant Wallace is Stone’s wife and
is named as a defendant because she may claim a homestead interest in the real property upon which
foreclosure is being requested. Wells Fargo is an additional named defendant because it holds a
mortgage lien on the property. All Defendants answered the Complaint in April 2015. Stone and
Wallace have asserted entitlement to offsets or credits against amounts due.
In September 2015, the attorneys for Stone and Wallace moved to withdraw because Stone
did not respond to their phone calls or email messages regarding the United States’ discovery
requests and had not provided the majority of documentation necessary to respond. On September
24, 2015, the Court issued an Order permitting counsel to withdraw and directing Stone and Wallace
to (1) file a written advisory to the Court that they intended to proceed without counsel; (2) obtain
new counsel and have that counsel enter a written appearance; or (3) move for additional time to
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obtain new counsel and specify the efforts made to obtain new counsel no later than October 15,
2015. The Court noted, “If Defendants fail to comply the Court may strike their pleadings or enter
other appropriate sanctions.” Stone and Wallace failed to comply with the Court’s order.
On November 10, 2015, the United States moved to extend certain scheduling order
deadlines. The motion noted that the United States had served interrogatories and requests for
production in July, but that Defendants had not fully responded. The Court amended the scheduling
order to allow more time to complete discovery.
On January 8, 2016, the United States filed a Motion to Compel Production of Documents
and Further Answers to Interrogatories from Defendant Stone. The motion was referred to
Magistrate Judge Mathy, and she ordered Stone to respond on or before January 19. Stone failed to
respond, and Judge Mathy granted the motion on January 20, 2016. The Order directed Stone to
respond to the discovery requests identified in Plaintiff’s motion on or before February 3, 2016.
Defendant Stone failed to comply with the Order.
On May 9, the United States filed the motion to strike and for default judgment under
consideration. The United States’ motion seeks sanctions against Defendant Stone pursuant to
Federal Rule of Civil Procedure 37(b)(2), which permits the Court to strike pleadings in whole or
in part and/or render a default judgment against a party who fails to obey discovery orders. The
United States seeks a default judgment against Stone holding that he is liable pursuant to 26 U.S.C.
§ 6672 for each of the assessments listed in the Complaint. The United States also asks the Court
to strike Defendant Wallace’s pleadings for failure to obey the Court’s September 24, 2016 Order.
For a default judgment to be granted under Rule 37, the penalized party’s discovery violation
must be willful and the Court must find that lesser sanctions would not substantially achieve the
desired deterrent effect. United States v. $49,000, 330 F.3d 371, 376 (5th Cir. 2003). The Court
should also consider whether the discovery violation prejudiced the opposing party’s preparation for
trial, and whether the client was blameless in the violation. Id. In this case, the failure to comply
with discovery and to comply with the order compelling discovery are willful, and the failure to
comply may be attributed entirely to Stone himself. Stone failed to cooperate with this attorneys on
discovery, and since their withdrawal has continued to inadequately respond to discovery and has
willfully ignored the Magistrate Judge’s order to comply with his discovery obligations. Stone has
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not indicated to the Court that he has had difficulty in complying and has not requested additional
time; in fact, Stone has not communicated with the Court at all, even when ordered to do so. Stone’s
failure to comply with the discovery order has prejudiced the United States’ ability to prepare for
trial.
Further, the Court finds that lesser sanctions would not achieve the desired deterrent effect.
Stone has indicated no intent to cooperate in discovery or comply with the Court’s orders (either the
September 24, 2015 order or the discovery order), despite threat of sanctions, and thus no lesser
sanction will likely obtain his compliance. The Court therefore grants the United States’ motion and
STRIKES Defendant Stone’s answer and orders default judgment against him consistent with the
allegations in the United States’ Complaint.
With regard to Defendant Wallace, the United States asks the Court to strike her pleadings
based on her failure to comply with the Court’s September 24, 4015 Order directing her to notify the
Court whether she intended to proceed with or without counsel. That Order expressly warned that
failure to comply could result in sanctions, including striking her pleadings. A district court has the
inherent power to impose sanctions on a litigant to enforce compliance with its orders. Rousseau
v. 3 Eagles Aviation, Inc., 130 F. App’x 687, 690 (5th Cir. 2005); see also FED. R. CIV. P. 16(f)
(authorizing sanctions for failure to obey a pretrial order). This inherent power includes authority
to strike a litigant’s pleadings, but this sanction requires a finding of bad faith or willful conduct.
Defendant Wallace failed to comply with this Court’s September 24, 2015 Order, despite being
warned of possible sanctions for failure to do so. Defendant’s conduct is willful, and there is no
indication that Wallace intends to defend this action or comply with the Court’s Order. Her failure
to comply with the Court order has prejudiced the United States and precludes this case from
proceeding. The Court will therefore STRIKE her answer.
The United States motion to strike Defendants’ answers and enter default judgment against
Stone (docket no. 32) is therefore GRANTED. The Court will issue the default judgment in a
separate order.

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The alterative motion to re-open discovery and continue remaining deadlines is DISMISSED
AS MOOT.
It is SO ORDERED.
SIGNED this 2nd day of June, 2016.

_________________________________
XAVIER RODRIGUEZ
UNITED STATES DISTRICT JUDGE

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