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United States v. Estate of Groesbeck

United States District Court, W.D. Washington, Seattle

October 9, 2019



          Honorable Richard A. Jones, United States District Judge


         This matter is before the Court on the United States' motion for entry of default judgment. Dkt. # 53. For the reasons below, the motion is GRANTED.


         The United States seeks to collect outstanding federal income tax assessments against Clarence Jess Groesbeck and in the process foreclose on related federal tax liens against three parcels of property in Skagit County, Washington (collectively, the “Subject Properties”) belonging to Groesbeck. Dkt. # 1. The United States has assessed Groesbeck with income tax liabilities for the 1998 through 2003 tax years. Id. Because Groesbeck passed away in 2009, the Estate of Clarence Jess Groesbeck (“Groesbeck Estate”) is responsible for these liabilities. Id.

         The complaint alleges that Groesbeck participated in an abusive trust scheme with the intent to avoid paying federal tax. Id., ¶ 28. He is alleged to have placed untaxed funds from his wholly owned corporation's profit sharing plan into offshore trusts and bank accounts, and then used the mortgages on his properties in the western United States to repatriate these funds, free of tax. Id. Groesbeck did not report this income on his federal tax returns and fraudulently computed the income he did report. Id. With respect to the 1998, 2000, 2001, 2002, and 2003 tax years, the IRS has assessed Groesbeck civil fraud penalties totaling $4, 947, 779.33. Id., ¶¶ 27, 28. Despite timely notice and demand for payment, Groesbeck neglected or refused to pay the full assessments, which remain outstanding. Id., ¶ 30. Pursuant to 26 U.S.C. §§ 6321 and 6322, liens arose in favor of the United States and attached to Groesbeck's property and rights to property, including the Subject Properties. Id., ¶ 31.

         The Subject Properties are continuous parcels of property located at “1224 East Blackburn Road, Mt. Vernon, Washington 98274” (“1224 East Blackburn”); “1418 East Blackburn Road, Mt. Vernon, Washington 98274” (“1418 East Blackburn”); and “1308 East Blackburn Road, Mt. Vernon, Washington 98274” (“1308 East Blackburn”). Id., ¶¶ 11, 16, 22. The complaint alleges that Groesbeck owned, and now the Groesbeck Estate owns, the Subject Properties through the C. Jess Groesbeck M.D., A.P.C., Profit Sharing Plan (“Profit Sharing Plan”); the Groesbeck Family Trust (“Family Trust”); and Genesis Ltd. Id., ¶¶ 12-24. Multiple transfers of the Subject Properties between Clarence Groesbeck and the entities involved no consideration or, in one case, $1. Id., ¶¶ 12-14, 17-20, 23-24. Since at least 2000, none of the entities has paid any expenses associated with the Subject Properties. Dkt. # 53-3, ¶ 14. Rather, Groesbeck and, following his death, his surviving spouse, Silvia Lee, exercised active and substantial control over the Subject Properties. Id., ¶¶ 5-10. For example, they rented out one of the properties for their own benefit and have allowed family members to live at one of the Subject Properties. Id., ¶¶ 5-6. They also maintaining the Subject Properties and paid all mortgages, utility bills, and other bills associated with them. Id., ¶¶ 5-10.

         The United States named the Profit Sharing Plan, the Family Trust, Genesis Ltd, and Silvia Lee as defendants in this lawsuit because they may claim an interest in at least one of the Subject Properties under 26 U.S.C. § 7403(b). Dkt. # 1. On January 11, 2017, the United States served the summons and Complaint on the Profit Sharing Plan, the Family Trust, and Genesis Ltd. See Dkt. ## 9-11. Neither the Profit Sharing Plan, the Family Trust, nor Genesis Ltd. appeared or pleaded by the date required, November 13, 2017, or at any other point. Accordingly, on March 8, 2018, the United States requested entry of default against these entities. Dkt. # 29. On March 15, 2018, the clerk entered default against the Profit Sharing Plan, Family Trust, and Genesis Ltd. Dkt. # 30. On August 12, 2019, the United States moved for entry of default judgment. Dkt. # 53. Concurrently, with the motion for entry of default judgment, the United States, the Groesbeck Estate, and Silvia Lee filed a stipulation in which the Groesbeck Estate and Silvia Lee concede that (i) the Groesbeck Estate is liable for the federal tax assessments against Clarence Groesbeck for the 1998 through 2003 years; (ii) the United States has valid and subsisting federal tax liens on all property and rights to property belonging to Clarence Groesbeck and the Groesbeck Estate; and (iii) Clarence Groesbeck fraudulently transferred title to 1224 East Blackburn and 1308 East Blackburn to his nominees. Dkt. # 54.


         At the default judgment stage, the court presumes all well-pleaded factual allegations are true, except those related to damages. TeleVideo Sys., Inc. v. Heidenthal, 826 F.2d 915, 917-18 (9th Cir.1987); see also Fair House. of Marin v. Combs, 285 F.3d 899, 906 (9th Cir. 2002). Although the entry of default judgment under Rule 55(b) is “an extreme measure, ” disfavored cases should be decided upon their merits whenever reasonably possible. Cmty. Dental Servs. v. Tani, 282 F.3d 1164, 1170 (9th Cir. 2002); also see Westchester Fire Ins. Co. v. Mendez, 585 F.3d 1183, 1189 (9th Cir. 2009).

         In addition, Federal Rule of Civil Procedure 55(b)(1) permits the court to enter default judgment when the plaintiff's claim “is for a sum certain or a sum that can be made certain by computation.” Fed.R.Civ.P. 55(b)(1). In moving the court for default judgment, a plaintiff must submit evidence supporting the claims for a particular sum of damages. Fed.R.Civ.P. 55(b)(2)(B). If the plaintiff cannot prove that the sum it seeks is “a liquidated sum or capable of mathematical calculation, ” the court must hold a hearing or otherwise ensure that the damage award is appropriate, reasonable and demonstrated by evidence. Davis v. Fendler, 650 F.2d 1154, 1161 (9th Cir. 1981); see also Getty Images (US), Inc. v. Virtual Clinics, 2014 WL 358412 (W.D. Wash. 2014). In determining damages, a court can rely on the declarations submitted by the plaintiff. Dr. JKL Ltd. v. HPC IT Educ. Ctr., 749 F.Supp.2d 1046 (N.D. Cal. 2010). Where there is evidence establishing a defendant's liability, the court has discretion, not an obligation, to enter a default judgment. Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980); see also Alan Neuman Productions, Inc. v. Albright, 862 F.2d 1388, 1392 (9th Cir. 1988). Since deciding for or against default judgment is within the court's discretion, a defendant's default does not de facto entitle a plaintiff to a court-ordered judgment. Curtis v. Illumination Arts, Inc., 33 F.Supp.3d 1200, 1210-11 (W.D. Wash. 2014).


         In exercising its discretion, the Court considers the “Eitel” factors: (1) the substantive merits of plaintiff's claims, (2) the sufficiency of the claims raised in the complaint, (3) the possibility of prejudice to the plaintiff if relief is denied, (4) the sum of money at stake, (5) the possibility of a dispute concerning material facts, (6) whether the default was due to excusable neglect, and (7) the strong policy favoring decisions on the merits when reasonably possible. Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986).

         As discussed below, the Court has considered each of the Eitel factors and finds they weigh in ...

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