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United States v. Funding

United States District Court, D. Nebraska

June 12, 2014

UNITED STATES OF AMERICA, Plaintiff,
v.
HARLAN M. THOMPSON; DIANE C. THOMPSON; MAPLE LEAF FUNDING, A

ORDER

THOMAS D. THALKEN, Magistrate Judge.

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.

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 fair-market 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.

In response, the Thompsons filed a Motion to Quash[3] (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 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).

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 ...


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