United States District Court, D. Columbia.
[Copyrighted Material Omitted]
Re Document No.: 25.
For UNITED STATES OF AMERICA DEPARTMENT OF JUSTICE, Plaintiff: Beatriz T. Saiz, Benjmain J. Weir, Thomas J. Jaworski, LEAD ATTORNEYS, U.S. DEPARTMENT OF JUSTICE, Tax Division, Washington, DC.
For LATNEY'S FUNERAL HOME, INC., CAROL E. LATNEY-SOLOMON, JOHN W. LATNEY, Defendants: Wendell C. Robinson, LEAD ATTORNEY, LAW OFFICES OF WENDELL C. ROBINSON, Washington, DC.
RUDOLPH CONTRERAS, UNITED STATES DISTRICT JUDGE.
Granting Plaintiff's Motion for Civil Contempt and Sanctions
The United States (the " Government" ) alleges that Latney's Funeral Home, Inc. (" LFHI" ) attempted to avoid its federal tax obligations for the better part of a decade by repeatedly failing to file tax returns and pay taxes owed to the Internal Revenue Service (" IRS" ). On February 17, 2012, the Court granted by consent a Preliminary Injunctive Order (the " Injunction" ) against LFHI that, among other things, precluded LFHI from committing further violations of the Internal Revenue Code. Order, ECF No. 18. The Court also granted the Government's unopposed Motion for Partial Summary Judgment, finding that LFHI owes over $1 million in unpaid payroll taxes and civil penalties. Mem. Op., Apr. 10, 2013, ECF No. 23. After LFHI remained delinquent on its past and present federal tax obligations, the Government filed a Motion for Civil Contempt and Sanctions and a Show Cause Order against LFHI and its co-operators, Carol E. Latney-Solomon (" Latney-Solomon" ) and John W. Latney (" Latney" ) (collectively, " Defendants" ). Pl.'s Mot. for Civ. Contempt, June 21, 2013, ECF No. 25. On October 29, 2013, this Court ordered that Defendants show cause for why they should not be held in civil contempt of the Injunction. Order, ECF No. 34.
Upon consideration of the Government's motion and Defendants' opposition to that motion, as well as additional relevant filings in this matter, the Court concludes for the reasons discussed below that Defendants are in civil contempt of the Injunction. Further, to remedy Defendants' continued noncompliance with the internal revenue laws and the Injunction, the Court orders that a limited receiver be appointed to assume control of LFHI's assets and ensure that Defendants' past, present, and future federal tax obligations are met.
II. FACTUAL AND PROCEDURAL BACKGROUND
LFHI is a family-run funeral home in the District of Columbia operated by siblings
Latney-Solomon and Latney. Compl., Nov. 23, 2011, ECF No. 1, ¶ ¶ 2-3, 10. LFHI was founded in 1938, and Latney-Solomon and Latney inherited the company from their parents. Defs.' Mem. in Opp'n, Mar. 31, 2014, ECF No. 44, at 1. In its Complaint, the Government alleges that since at least 1999, LFHI has committed numerous violations of the Internal Revenue Code. These violations include: LFHI's failure to timely file its Employer's Quarterly Tax Returns (Form 941) for all taxable quarters since the third quarter of 1999, Compl., ECF No. 1, ¶ 14; LFHI's failure to pay federal income and social security taxes that were withheld from LFHI employees for nearly every quarterly tax period since 1999, totaling $1,009,871, id. ¶ ¶ 15-18; LFHI's failure to timely file Federal Unemployment Tax Act (Form 940) returns since 1999, id. ¶ 20; and LFHI's failure to pay the full amount of federal unemployment taxes between December 1999 and December 2008, totaling $60,322, id. ¶ ¶ 21-24. In addition to these violations, LFHI owes $28,062 in civil penalties under 26 U.S.C. § 6721 for its intentional failure to file W-2 Wage and Tax statements in 2002. Id. ¶ ¶ 26-29.
Before filing the Complaint, the Government took several steps to move Defendants into compliance with the federal tax laws and to prevent Defendants from further compounding their tax liabilities. Pl.'s Mot. for Prelim. Inj., Nov. 23, 2011, ECF No. 2, at 5-6. For example, on May 21, 2008, the Government sent Defendants an " IRS Letter 903" imploring them to comply with the payment and deposit rules for federal employment taxes and advising them of possible civil and criminal penalties for continued noncompliance. Decl. of Lisa A. Swope, ECF No. 1-1, at ¶ ¶ 20-21. Despite issuance of this warning, LFHI continued to incur additional employment tax liabilities on top of the taxes it already owed for prior periods. Order, ECF No. 18, at ¶ 8. The IRS also attempted conventional collection methods against LFHI to no avail. Pl.'s Mot. for Prelim. Inj., ECF No. 2, at 6. These actions included filing Notices of Federal Tax Lien against LFHI and issuing IRS levies to sixteen potential sources of collection regarding LFHI's outstanding taxes. Decl. of Lisa A. Swope, ECF No. 1-1, at ¶ ¶ 23-24.
In addition to filing the Complaint against Defendants, the Government simultaneously moved for a preliminary injunction. Pl.'s Mot. for Prelim. Inj., ECF No. 2. On February 17, 2012, the Court granted the Government's motion with Defendants' consent and issued the Injunction. Order, ECF No. 18. The Government separately moved for partial summary judgment on October 5, 2012. Pl.'s Mot. for Part. Summ. J., ECF No. 21. On April 10, 2013, the Court granted this motion, which Defendants did not oppose, finding that LFHI owes $1,009,871 in federal income and social security taxes, $60,322 in federal unemployment taxes, and $28,062 in civil penalties. Mem. Op., ECF No. 23, at 4.
That brings us to the impetus for today's ruling. On June 21, 2013, the Government filed a Motion for Civil Contempt and Sanctions and a Show Cause Order. Pl.'s Mot. for Civ. Contempt, ECF No. 25. In their opposition memorandum, Defendants argued that a show cause order is appropriate for only " willful violation[s]" of a court order, whereas in this instance Defendants were in " good faith compliance"
with the Injunction. Defs.' Mem. in Opp'n, July 17, 2013, ECF No. 28, at 2. To demonstrate their " good faith" effort to file and pay taxes, Defendants attached records demonstrating partial payment of taxes for periods in 2012 and 2013. See Defs.' Mem. in Opp'n, ECF No. 28-1. In response, the Government argued that LFHI had not filed all its outstanding tax returns and had " continued to pyramid its tax liabilities by not fully paying its payroll tax obligations since the entry of the preliminary injunction." Pl.'s Reply, July 26, 2013, ECF No. 32, at 2. For example, the Government pointed out that the exhibit to Defendants' opposition memorandum showed that although Defendants had paid $12,821.82 toward its 2013 taxes as of May 21, 2013, " [t]hey still ow[ed] $9,419.80 to make them current for the year." Id. (citing Defs.' Mem. in Opp'n, ECF No. 28-1).
The Court granted the Government's motion and issued a Show Cause Order on October 29, 2013, which stated that Defendants were in violation of nearly all the requirements in the Injunction. Order, ECF No. 34. A hearing was held regarding the Show Cause Order on January 22, 2014, and the parties submitted supplemental briefing on whether Defendants are in contempt and, if so, what sanctions are appropriate.
A. Legal Standard For Civil Contempt
" [C]ourts have the inherent power to enforce compliance with their lawful orders through civil contempt." Shillitani v. United States, 384 U.S. 364, 370, 86 S.Ct. 1531, 16 L.Ed.2d 622 (1966). The civil contempt power " is essential to the enforcement of the judgments, orders, and writs of the courts, and consequently to the due administration of justice." Broderick v. Donaldson, 437 F.3d 1226, 1234, 369 U.S. App.D.C. 374 (D.C. Cir. 2006) (citation and quotation omitted). " A civil contempt action is characterized as remedial in nature, used to obtain compliance with a court order or to compensate for damages sustained as a result from noncompliance." United States v. Shelton, 539 F.Supp.2d 259, 262 (D.D.C. 2008) (citing Evans v. Williams, 206 F.3d 1292, 1294-95, 340 U.S. App.D.C. 500 (D.C. Cir. 2000)).
As the party moving for a civil contempt finding, the Government bears the initial burden of demonstrating by clear and convincing evidence that: (1) there was a clear and unambiguous court order in place; (2) that order required
certain conduct by Defendants; and (3) Defendants failed to comply with that order. See Int'l Painters & Allied Trades Indus. Pension Fund v. ZAK Architectural Metal & Glass LLC, 736 F.Supp.2d 35, 38 (D.D.C. 2010) (citing Armstrong v. Exec. Office of the President, 1 F.3d 1274, 1289, 303 U.S. App.D.C. 107 (D.C. Cir. 1993); SEC v. Bilzerian, 112 F.Supp.2d 12, 16 (D.D.C. 2000)). " 'In the context of civil contempt, the clear and convincing standard requires a quantum of proof adequate to demonstrate a reasonable certainty that a violation occurred.'" Phillips v. Mabus, 894 F.Supp.2d 71, 91 (D.D.C. 2012) (quoting Breen v. Tucker, 821 F.Supp.2d 375, 383 (D.D.C. 2011)).
" Once the court determines that the movant has made the above three-part showing, the burden shifts to the defendant to justify the noncompliance by, for example, demonstrating its financial inability to pay the judgment or its good faith attempts to comply." Int'l Painters & Allied Trades Indus. Pension Fund, 736 F.Supp.2d at 38 (citing Bilzerian, 112 F.Supp.2d at 16-17). The alleged contemnor must justify its noncompliance " categorically and in detail." Id. at 40 (citation omitted); SEC v. Current Fin. Servs., Inc., 798 F.Supp. 802, 808 (D.D.C. 1992) (citation omitted). A court " need not find that [the] failure to comply with the orders was willful or intentional" because a party's intent is irrelevant when making a civil contempt determination. Bilzerian, 112 F.Supp.2d at 16 (citation omitted).
B. Whether Defendants Are In Civil Contempt Of The Injunction
On June 21, 2013, the Government asked this Court to issue a show cause order requiring Defendants to demonstrate why they are not in violation of the Injunction. Pl.'s Mot. for Civ. Contempt, ECF No. 25. The Court granted the Government's motion and ordered that Defendants show cause for why they should not be held in civil contempt. Order, ECF No. 34. As the movant, the Government bears the initial burden of demonstrating by clear and convincing evidence that: (1) there was a clear and unambiguous court order in place; (2) that order required certain conduct by Defendants; and (3) Defendants failed to comply with that order. Int'l Painters & Allied Trades Indus. Pension Fund, 736 F.Supp.2d at 38. Upon consideration of the parties' arguments and for the reasons discussed below, the Court concludes that the Government has met its burden of demonstrating by clear and convincing evidence that Defendants are in civil contempt of the Injunction.
1. Clear And Unambiguous Court Order Requiring Certain Conduct
The Government first must demonstrate that there was a clear and unambiguous court order in place and that this order required certain conduct by Defendants. Id. The Injunction-- the entry to which Defendants consented--required Defendants to, among other things:
o " immediately cease violating Internal Revenue Code Sections 3102, 3111, 3301, 3402, 6011(a) and 6041" ;
o " withhold and to pay over to the Internal Revenue Service all employment taxes, including federal income, FICA, and FUTA taxes, as required by law" ;
o " make timely (no later than the 15th day of the following month) deposits of federal payroll taxes, e.g., withheld federal income tax, withheld FICA tax as well as defendant's share of FICA tax, as they become due in an appropriate federal depository bank ...