Opinion
CASE NO. 02-71165, CASE NO. 02-74894
December 30, 2003
Presently before the Court are three motions in two separate cases. In United States v. Garratt, 02-71165, the United States has filed its Motion for Summary Judgment (Docket Entry 9). In GB II v. United States, 02-74894, the United States has filed its Motion to Dismiss (Docket Entry 14) and GB II has filed its Motion for Summary Judgment (Docket Entry 13).
BACKGROUND
The following table, taken from the United States' Motion for Summary Judgment against C, William Garratt ("Garratt"), provides the dates and amounts of assessments made by the IRS for the unpaid tax liabilities of Garratt:
The United States' Brief in Support of its Motion for Summary Judgment provides: "Since the filing of the complaint, the assessments for 1992, 1994, and 1996 have been paid, primarily through the receipt of a $158,000 payment from the bankruptcy trustee of the bankruptcy estate of John DeLorean. That payment is the subject of a wrongful levy proceeding pending in this Court, GBII v. United States, docket no. 02-74894. Although the United States is defending that action, should the United States have to give back any of that $158,000, the accounts of Gamut would be debited to the extent of the amount of money that the government had to relinquish, Thus, the United States in this motion is seeking summary judgment that the assessments for 1992, 1994 and 1996 are valid assessments, for which we will request judgment." (U.S. Brief, p. 2, n. 2).
Garratt and Donald Bachand ("Bachand") established G BII as a Michigan professional corporation in 1996. (Deposition of Donald Bachand, Cole Dec., Ex. 11, p. 9-10). At the time of GB II's inception, Garratt owned "seventy-five to eighty percent" of the stock, and Bachand owned the remainder. (Id,). The percentages of ownership were set to adjust downward each year until the two became fifty-percent owners. (Id. p. 12). In 1997, however, Garratt transferred his ownership in GB II to Sarah Arnold ("Arnold"). (Id., p. 11). In 1998, Garratt re-acquired a one percent interest in GB II. (Id, p. 13). Today, the ownership of GB II is as follows: Bachand (50%), Arnold (49%), and Garratt (1%).
GB II may be referred to as Garratt Bachand at some points throughout the record and in this Order. Garratt Bachand is an assumed name of GB II. (Bachand Dep., p, 27).
Arnold is the daughter of Garratt's former wife. (Bachand Dep., p. 15).
Garratt has a history of involvement in numerous professional legal corporations. These corporations include: C, William Garratt Associates, P.C, GA II, P.C., Garratt Moms, P.C., Garratt, Moms, Evans, P.C., Garratt Evans, P.C., GAII, P.C., GM II, P.C., GME, P.C, and GE, P.C., (Docket Sheet from U.S. Bankruptcy Court in New Jersey, Cole Dec.3 Ex. 5).
In the mid-1980s, some of these law firms represented John Z. DeLorean, former head of the Chevrolet Division of General Motors and the founder of the DeLorean Motor Company. (GB II`s Brief, Ex. 5., ¶ 5), DeLorean failed to pay the legal fees owed to the Garratt law firms Between 1993 and 1995, the Garratt firms obtained judgments against DeLorean in three different cases in the Oakland County, Michigan Circuit Court for unpaid legal fees and costs, malicious prosecution, and sanctions, (Id., ¶ 6). In post-judgment proceedings, the Oakland County Circuit Court issued an injunction preventing DeLorean's transfer of assets and appointed Lawrence Friedman, a Michigan attorney, as Receiver of DeLorean's assets, (Id., ¶ 7).
On April 17, 1995, Friedman, Garratt, C. William Garratt Associates, P.C., and GA II, P.C., filed a lawsuit against the Friedberg Law Corporation and several other entities, each of which was an attorney for DeLorean ("Michigan Recovery Action"). (Cole Dec., Ex, 2) The Michigan Recovery Action alleged that DeLorean, in violation of the Oakland County Circuit Court orders, transferred several hundred thousand dollars to his lawyers. (Id.). At the beginning of 1996, the Michigan Recovery Action was removed to the United States District Court for the Eastern District of Michigan and assigned to Judge Paul V. Gadola, (Cole Dec., Ex. 3), Following a September, 1999 trial, a judgment for $800,000 was entered against Friedberg Law Corporation. (Id.). On December 16, 1999, the plaintiffs in the Michigan Recovery Action filed a motion for attorney's fees. (Id.). On April 6, 2000, Judge Gadola issued an order denying that motion and staying the proceedings due to the filing of a bankruptcy petition. (Id.).
The bankruptcy petition filed was that of DeLorean. The petition was filed on September 16, 1999 in the United States Bankruptcy Court for the District of New Jersey, (Cole Dec, Ex. 4), On October 8, 1999, Simon Kimmelman was appointed the trustee of the DeLorean bankruptcy estate. (Id.). On May 24, 2000, the proceeding was converted to a Chapter 7 proceeding under the United States Bankruptcy Code, (Id.).
On January 1, 2001, Kimmelman filed a lawsuit in United States District Court for the District of New Jersey against Garratt, C. William Garratt Associates, P.C, GA 11, P.C, Garratt Morris, P.C., Can-art, Moms Evans, P.C., Garratt Evans, P.C., GA 11, P.C., GM II, P.C., GME, P.C., GE, P.C., Garratt Bachand, P.C, and Friedman (the "New Jersey Recovery I Action"). (Cole Dec., Ex. 5). On June 18, 2001, Kimmelman, Garratt, and the Gamut law firms executed an Assignment Agreement, Under the Assignment Agreement, Kimmelman assigned to the Michigan Recovery Action plaintiffs his avoidance and recovery powers with respect to the Friedberg Law Corp. (Cole Dec., Ex. 6), In exchange, the Michigan Recovery Action plaintiffs agreed to pay Kimmelman $15,000 immediately, plus the first $10,000 recovered from the Friedberg Law Corp., plus and additional 25% of any amount recovered from the Friedberg Law Corp. in excess of $10,000, (Id). Some of the Michigan Recovery Action plaintiffs also agreed to have their bankruptcy claims reduced by 50% for the purpose of calculating any unsecured dividend to those entities, (Id.). The Michigan Recovery Action plaintiffs were not represented in New Jersey by GB II, but by another attorney, Linda Schwimmer, of the law firm of Markowitz, Gravelle Schwimmer. (Id).
On January 8, 2002, Kimmelman, Garratt, the Garratt law firms, and the Friedberg Law Corp. entered into a settlement agreement providing for the payment of $235,000 by the Friedberg Law Corp. to Kimmelman. (Cole Dec., Ex. 9), Of the $235,000, $158,000 was to be distributed by Kimmelman to Garratt Bachand, and the remaining $77,000 was to be retained by Kimmelman on behalf of the DeLorean estate. On March 18, 2002, the United States District Court for the District of New Jersey entered an order approving the settlement agreement. (Cole Dec., Ex. 10). According to the settlement agreement, payment to GB II for its provision of legal services was to be addressed by the payment of $158,000. (Cole Dec., Ex. 9). The interests of Kimmelman and other DeLorean creditors were to be addressed by the $77,000 payment. (Id.).
Sometime after the settlement agreement was reached, but before the $ 158,000 payment was made, Edward Friedberg telephoned IRS Revenue Officer Michael Bryant, (Deposition of Michael Bryant, p. 38),
A: He said he was Edward Friedberg, an attorney from California who had been involved in some litigation with regard to Mr. Garratt.
Q: Did he identify what sort of litigation it was that he had been involved in with Mr. Garratt?
A: Yes, he did.
Q: And what was that?
A: He referenced a bankruptcy estate regarding John Z, DeLorean.
* * *
A: He has said that there were funds being made available from the state that were about to be disbursed within a matter of weeks and this j was an opportunity for the IRS to effect collection.
(Id., p. 39). On August 30, 2002, Friedberg sent various material concerning the Garratt matter to Bryant. (Id., p. 40), On November 6, 2002, Bryant submitted a Notice of Levy to Kimmelman, demanding payment of the $158,000. (GB II Brief, Ex. 1). Kimmelman remitted the entire $158,000 to the IRS. ANALYSIS I. United States v. Garratt
A. Standard for Summary Judgment
Pursuant to Federal Rule of Civil Procedure 56, a party against whom a claim, counterclaim, or cross-claim is asserted may "at any time, move with or without supporting affidavits, for a summary judgment in the party's favor as to all or any part thereof," Fed R. Civ. P. 56(b), Summary judgment is appropriate where the moving party demonstrates that there is no genuine issue of material fact as to the existence of an essential element of the nonmoving party's case on which the nonmoving party would bear the burden of proof at trial Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). A fact is "material" for purposes of a motion for summary judgment where proof of that fact "would have [the] effect of establishing or refuting one of the essential elements of a cause of action or defense asserted by the parties." Kendall v. Hoover Co., 751 F.2d 171, 174 (6th Cir. 1984) (quoting Black's Law Dictionary 881 (6th ed, 1979)) (citations omitted). A dispute over a material fact is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). Conversely, where a reasonable jury could not find for the nonmoving party, there is no genuine issue of material fact for trial. Id.; Feliciano v. City of Cleveland, 988 F.2d 649, 654 (6th Cir. 1993). In making this evaluation, the court must examine the evidence and draw all reasonable inferences in favor of the non-moving party. Bender v. Southland Corp., 749 F.2d 1205, 1210-1211 (6th Cir. 1984).
If this burden is met by the moving party, the non-moving party's failure to make a showing that is "sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial" will mandate the entry of summary judgment. Celotex, 477 U.S. at 322-23. The non-moving party may not rest upon the mere allegations or denials of his pleadings, but the response, by affidavits or as otherwise provided in Rule 56, must set forth specific facts which demonstrate that there is a genuine issue for trial. Fed.R.Civ.P. 56(e). The rule requires that non-moving party to introduce "evidence of evidentiary quality!' demonstrating the existence of a material fact. Bailey v. Floyd County Bd. of Educ., 106 F.3d 135, 145 (6th Cir. 1997); see also Anderson, 477 U.S. at 252 (holding that the non-moving party must produce more than a scintilla of evidence to survive summary judgment).
B. The Tax Assessments
"The Commissioner's determination of tax liability, if calculated according to an acceptable procedure, such as the net worth method, is presumptively correct and places the burden of producing contrary evidence upon the taxpayer." United States v. Walton, 909 F.2d 915, 918 (6th Cir. 1990) (citing Helvering v. Taylor, 293 U.S. 507, 515; 55S. Ct. 287;79L. Ed. 623 (1935); Traficant v. Commissioner, 884 F.2d 258, 263 (6th Cir. 1989); Calderone v. United States, 799 F.2d 254, 258 (6th Cir. 1986); Schrader v. Commissioner, 420 F.2d 443, 444 (6th Cir. 1970)). Generally, the taxpayer will bear not only the burden of production, but also the burden of proving by a preponderance of the evidence that the Commissioner's assessment is "arbitrary and excessive." Id. (citing Helvering, 293 U.S. at 515; Traficant, 884 F.2d at 263; Calderone, 799 F.2d at 258).
When the government places certificates of assessment in evidence, the presumption of correctness applies, and thereby establishes a prima facie case. Id. at 919 (citing United States v. Stonchill, 702 F.2d 1288, 1293 (9th Cir. 1983), cert. denied, 465 U.S. 1079; 104 S.Ct. 1440; 79 L. Ed 2d 761 (1984)).
In this case, the United States has placed each certificate of assessment into evidence. This serves to establish a prima facie case against Garratt. Garratt has not produced any evidence which would rebut any of the certificates. Rather, Garratt attacks the method by which the certificates were introduced. By virtue of not putting forward any evidence, Garratt has conceded that if the certificates are admissible, summary judgment should be granted.
C. The Declaration of Thomas Cole
Along with its motion for summary judgment, the United States submitted the Declaration of Thomas Cole, The Declaration states, in pertinent part: "I have in my possession certain originals and copies of documents obtained from the Internal Revenue Service that relate to the subject of this lawsuit." (Cole Dec., ¶ A). Attached to the Declaration are the relevant certificates.
In his Opposition to the United States' motion, Garratt argues that "Mr. Cole's Declaration, however, is not based upon personal knowledge and is hearsay," (Garratt's Opposition, p. 1). "[Mr. Cole's] declaration . . . is made with respect to certain attached IRS Certificates of Assessments and Payments which he did not prepare, review prior to preparation, or know personally arc true and accurate." (Id, p. 2-3). In addition, Garratt argues that "[b]y filing a Declaration, Mr. Cole has made himself a witness in this case . . . The United States, however, failed to timely disclose Mr. Cole as a witness because he was not listed on the United States' Witness List." (Id., p. 4).
In its Reply, the United States argues that "[w]here a government attorney has received records from a governmental agency, he is the keeper of the records during the time that he possesses them. Thus, he is a proper person to authenticate them." (U.S. `s Reply, p. 2). The United States also contends that Mr. Cole was included on its Witness List as "[a]ny witness necessary to authenticate exhibits, including, but not limited to, IRS records concerning assessments made against and payments made by the Defendant." (Id., p. 3).
Affidavits, or declarations, submitted in support of a motion for summary judgment must be made on personal knowledge. Fed.R.Civ.P. 56(e), Garratt argues that Cole's Declaration cannot be based on personal knowledge because he did not prepare the certificates. In the Declaration, however, Cole does not allege to have prepared the documents. Instead, he states that he has the certificates in his possession. Rule 802(6) states that records of regularly conducted activity are exceptions to hearsay when accompanied by "the testimony of the custodian or other qualified witness . . ." Fed.R.Civ.P, 802(6), The Court finds that the Declaration is sufficient to establish Cole as a qualified witness in this case,
Garratt's next argument is that the Declaration should be disregarded because Cole was not listed on the United States' Witness List. The Court rejects this argument. As stated by the United States: "[The Witness] list identifies `[a]ny witness necessary to authenticate exhibits, including, but not limited to, IRS records concerning assessments made against and payments made by the Defendant.'" (Id., p. 3). As discussed above, Mr. Cole qualifies as such a witness. Accordingly, the Court grants the United States' Motion for Summary Judgment.
B. GBII v. United States A. United States' Motion to Dismiss
A. Standard for Motion to Dismiss
In reviewing a motion to dismiss, the Court must consider all affidavits and pleadings in a light most favorable to the plaintiffs, and cannot weigh the controverting assertions of the party seeking dismissal. Nicmi v. NHK Spring Co., 276 F. Supp.2d 717 (E.D. Mich. 2003) (citing Dean v. Motel 6 Operating, LLP, 134 F.3d 1269, 1272 (6th Cir. 1998)).
B. GB II's Fifth Amendment Claim
GB II has conceded that Count II of its complaint must be dismissed. "GB concedes the validity of the government's arguments with respect to Count II of its Complaint." (GB H's Response, p, 8). Accordingly, the Court grants the United States' Motion to Dismiss with regard to Count II of the Complaint,
C. IRC Sections
Section 7426 of the Internal Revenue Code ("IRC") provides that "[i]f a levy has been made on property . . . any person (other than the person against whom is assessed the tax out of which such levy arose) who claims an interest in or lien on such property and that such property was wrongfully levied upon may bring a civil action against the United States in a district court of the United States." 26 U.S.C, § 7426. 28 U.S.C. § 1346(e) provides the district courts with original jurisdiction over such a claim. However, "[a]ny civil action against the United States under subsection (e) of section 1346 of this title may be prosecuted only in the judicial district where the property is situated at the time of levy . . ." 28 U.S.C. § 1402(c).
The United States argues that "[b]ecause the property was located in New Jersey at the time the levy was made, venue is not proper in this Court, and this action should be dismissed" (Brief in Support of U.S. `s Motion to Dismiss, p, 5), GB II argues that the United States waived its challenge to venue by defending the action in this Court, stating that "[a]sserting improper venue at the close of discovery when the case is ripe for decision is a tactical ploy, addressing none of the purposes of securing proper venue for any party." (GB II's Response, p, 3). The United States counters this argument by asserting that because it included improper venue as an affirmative defense in its Answer, it could not have waived such defense.
D. Waiver
A defense of lack of jurisdiction over the person, improper venue, insufficiency of process, or insufficiency of service of process is waived (A) if omitted from a motion in the circumstances described in subdivision (g), or (B) it is neither made by motion under this rule nor included in a responsive pleading or an amendment thereof . . .
Fed, R. Civ. P. 12(h). This rule, however, "sets only the outer limits of waiver; it does not preclude waiver by implication." Marquest Medical Products, Inc. v. Emede Corp., 496 F. Supp. 1242, 1245 n. 1 (D. Colo. 1980); cf. also United States v. Gluklick, 801 F.2d 834, 837 (6th Cir. 1986) ("In personam jurisdiction may be obtained by a actions of a party amounting to a waiver").
In this case, the United States preserved its objection to venue by including it as an affirmative defense in its Answer. The question before the Court, therefore, is whether the circumstances of this case merit a finding of waiver by implication, In order to find that the United States has waived its objection to venue, the Court must find that the acts of the United States in defending the case up to this point, i.e., performing discovery, are consistent with a waiver of the objection. The parties have presented no case law to guide the Court in making this decision,
In its attempt to defeat the United States' motion, GB II asks the Court to use the analogy of removal from state court to federal court. GB II states: "In the analogous circumstance of removal from state to federal court, courts have held that a defendant waives his or its right to removal, even though that right is statutory, where it undertakes and makes affirmative use of state court processes before immediately asserting his or her right to removal" (GB II's Response, p. 4) (citing Regis Assoc. v, Rank Hotels (Management) Ltd., 894 F.2d 193, 195 (6th Cir. 1990); McKinnon v. Doctor's Associates, Inc., 769 F. Supp. 216, 217 (E.D. Mich. 1997); Rose v. Giamatti, 721 F. Supp. 906, 922 (S.D. Ohio, 1989)).
The Court holds that the United States has not waived its ability to challenge this action on the ground of improper venue. The defense of improper venue was raised in the United States' Answer as an affirmative defense, The actions of the United States have failed to lead GB II, and the Court, to believe that the United States has waived its objection to venue. The actions cited by GB II include participating in a Rule 26 discovery plan, issuing written discovery requests, undertaking deposition discovery and defending discovery, The Court notes that every one of these actions and their results, i.e. documents and deposition transcripts, can be used if the case is transferred to New Jersey. In other words, if the action is transferred to New Jersey, the parties will not have to engage in duplicative discovery. The Court therefore finds that that the actions of the United States, in this particular circumstance, do not constitute a waiver of an otherwise validly preserved challenge to improper venue.
The United States claims that venue in this action is proper only in New Jersey. The United States, in its Reply, states that it has no objection to this action being transferred to the United States District Court for the District of New Jersey. (Reply, p, 2). Accordingly, the Court grants the United States' Motion, and hereby transfers this action, GB II v. United States, 02-74894, to the United States District Court for the District of New Jersey,
B. GB II's Motion for Summary Judgment
Due to the fact that the Court has granted the United States' motion to transfer venue, which was filed before GB II's motion for summary judgment, the Court denies GB II's motion for summary judgment as moot.
CONCLUSION
For the reasons stated above, the Court (1) GRANTS the United States' Motion for Summary Judgment in United States v. Garratt, 02-71165; (2) GRANTS the United States' Motion to Dismiss as to Count II of the Complaint in GB II v. United States, 02-74894; (3) GRANTS the United States' Motion to Transfer Venue as to Count I of the Complaint in GB II; and (4) DENIES GB II's Motion for Summary Judgment,
SO ORDERED.