Opinion
Civ. No. 03-4540 (JNE/JSM)
June 7, 2004
Joseph T. Dixon, Jr., Esq., William I. Kampf, Esq., Joel D. Nesset, Esq., Henson Efron, P.A., for Plaintiffs Juno Investment Corporation, Juno Investment Co., LLC, Juno Investments LLC, and Finlandia LLC.
Michael R. Pahl, Esq., United States Department of Justice, for Defendant United States of America, Internal Revenue Service
ORDER
This is an action to quiet title brought by Juno Investment Corporation, Juno Investment Co., LLC, Juno Investments LLC, and Finlandia LLC (collectively, Plaintiffs) against the United States of America, Internal Revenue Service. See 28 U.S.C. § 2410 (2000). The case is before the Court on Plaintiffs' Motion for Summary Judgment and Motion for Stay of Discovery. For the reasons set forth below, the Court denies the motions.
I. BACKGROUND
In late 2001 and early 2002, the government filed liens on property owned by Plaintiffs in an attempt to collect delinquent taxes and penalties from Stephen Scallen (S. Scallen) and Chacke Scallen (C. Scallen). S. Scallen and C. Scallen are the parents of Plaintiffs' owners, Julie Scallen (J. Scallen) and Nora Rottier. The government contends that Plaintiffs are controlled by J. Scallen and Rottier in name only and that Plaintiffs are actually the alter egos of the S. Scallen and C. Scallen. Plaintiffs dispute the government's contentions.
II. DISCUSSION
A. Motion for summary judgment
Summary judgment is proper "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). The moving party "always bears the initial responsibility of informing the district court of the basis for its motion," and must identify "those portions of [the record] which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). If the moving party satisfies its burden, Rule 56(e) requires the party opposing the motion to respond by submitting evidentiary materials that designate "specific facts showing that there is a genuine issue for trial." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). In determining whether summary judgment is appropriate, a court must look at the record and any inferences to be drawn from it in the light most favorable to the party opposing the motion. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986).
Plaintiffs moved for summary judgment before the government conducted any discovery in this case. Their motion for summary judgment is premised on the assertion that the ultimate issue in this case is not whether they are in fact alter egos of S. Scallen and C. Scallen. Instead, Plaintiffs assert that the issue is whether the government was justified in treating them as such when it filed the liens. Plaintiffs rely heavily on Oxford Capital Corp. v. United States, 211 F.3d 280 (5th Cir. 2000). In that case, an action for wrongful levy, the Court of Appeals concluded that the IRS's ability to compile "sufficient facts to establish alter ego status by substantial evidence is irrelevant to the issue of whether it had grounds to believe alter ego status at the time of the levy." Id. at 285. That the Fifth Circuit addressed an action for wrongful levy as opposed to an action to quiet title is, according to Plaintiffs, a distinction without a difference for purposes of this case. The Court disagrees. A lien and a levy serve distinct functions:
A levy forces debtors to relinquish their property. It operates as a seizure by the IRS to collect delinquent income taxes. The IRS's levying power is limited because a levy is an immediate seizure no requiring judicial intervention. A levy connotes compulsion or a forcible means of extracting taxes from a "recalcitrant taxpayer." . . .
A lien, however, is merely a security interest and does not involve the immediate seizure of property.United States v. Barbier, 896 F.2d 377, 379 (9th Cir. 1990) (citations omitted). Given the significant differences between a lien and a levy, the Court declines to import Oxford Capital into this case.
An examination of case law within the Eighth Circuit indicates that the determination of alter-ego status in an action to quiet title is not limited to the record compiled by the government when it files the lien. For example, in BBCA, Inc. v. United States, 954 F.2d 1429 (8th Cir. 1992), the Eighth Circuit summarized this Court's decision in a quiet-title action to allow the IRS discovery into the alter-ego issue:
The IRS filed tax liens on the real property of BBCA (a "church") for unpaid federal tax assessments made against Joan and James Noske. BBCA, seeking to have the liens lifted, brought an action to quiet title pursuant to 28 U.S.C. § 2410 (1988). The IRS defended, claiming that the liens were valid because BBCA was the alter ego of Joan and James Noske (Noskes). BBCA claimed that the IRS's alter ego theory was not a valid defense under Minnesota law. The district court rejected this argument and allowed the IRS to proceed with discovery on this theory of defense. To establish that BBCA was the alter ego of the Noskes, the IRS sought to discover information related to the functioning of BBCA. BBCA continually refused to comply with these discovery requests for a variety of reasons, none of which the district court found meritorious. Accordingly, the court entered orders compelling discovery, required BBCA to pay the IRS's attorneys' fees as sanctions for violating these orders, and finally granted the IRS's motion to dismiss.954 F.2d at 1430 (dismissing BBCA's appeal for lack of jurisdiction because BBCA failed to timely appeal).
Similarly, in United States v. Scherping, 187 F.3d 796 (8th Cir. 1999), the IRS filed notices of federal tax liens in 1984 and commenced a collection action in 1989. Id. at 800. The collection action was stayed pending a criminal investigation of taxpayers. Id. at 798. After the completion of the criminal proceedings, which resulted in convictions, the government sought to foreclose its tax liens on the property that taxpayers had purportedly conveyed to two business trusts. Id. at 798-99. The district court held that the trusts were alter egos of taxpayers. Id. at 800. In affirming the district court with respect to the alter-ego issue, the Court of Appeals relied on the taxpayers' convictions, a tax court's holding in 1989 that taxpayers' other vehicle for tax avoidance was a sham trust, and taxpayers' own deposition testimony. Id. at 803. For present purposes, the reliance in Scherping on information acquired by the government after it had commenced the collection action is instructive.
Based on Scherping and this Court's practice in BBCA, the Court concludes that the determination of whether Plaintiffs are alter egos of S. Scallen and C. Scallen is not limited to the record compiled by the government when it filed the liens. The government is entitled to support its contention that Plaintiffs are alter egos of S. Scallen and C. Scallen with materials obtained through discovery. Accordingly, the Court denies Plaintiffs' summary-judgment motion because it is based on an erroneous view of the ultimate issue in this case.
B. Motion to stay discovery
Plaintiffs raise two arguments in support of their motion to stay discovery. They first argue that the determination of whether they are alter egos of S. Scallen and C. Scallen must be made on the record compiled by the government when it filed the liens. For the reasons set forth above, the Court rejects this argument. In the alternative, Plaintiffs assert that discovery should be stayed because the parties already conducted discovery on the alter-ego issue in a case before the Bankruptcy Court for the Middle District of Florida. This argument is inconsistent with representations they made in the Rule 26(f) report. In that report, dated February 20, 2004, they submitted a discovery plan that included 25 interrogatories, 10 depositions of non-experts, 1-2 expert depositions, and a discovery deadline of April 16, 2004. Although Plaintiffs could have asserted that discovery from the Florida case rendered discovery here unnecessary, nowhere in the Rule 26(f) report did they make such an assertion. Plaintiffs do not explain their failure to do so. Even if the Court were to consider Plaintiffs' belated discovery proposal, the Court concludes that the discovery conducted in the Florida case does not constitute good cause to modify the pretrial discovery schedule in this case. See D. Minn. R. 16.3(a). Accordingly, the Court denies Plaintiffs' motion to stay discovery.
The parties agreed to stay the Florida case to allow Plaintiffs to bring this action. By Order of July 30, 2003, the Bankruptcy Court for the Middle District of Florida stayed its proceedings. Plaintiffs brought this action the next week.
III. CONCLUSION
Based on the files, records, and proceedings herein, and for the reasons stated above, IT IS ORDERED THAT:
1. Plaintiffs' Motion for Summary Judgment [Docket No. 16] is DENIED.
2. Plaintiffs' Motion for Stay of Discovery [Docket No. 21] is DENIED.