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United States v. Bauer

United States District Court, D. Colorado

September 30, 2019

UNITED STATES OF AMERICA, Plaintiff,
v.
KYLE L. BAUER and COLORADO DEPARTMENT OF REVENUE, Defendants.

          ORDER

          Philip A. Brimmer Chief Judge

         This matter is before the Court on the United States’ Motion for Default Judgment Against Kyle L. Bauer [Docket No. 27].

         I. BACKGROUND

         Because of the Clerk of Court’s entry of default, Docket No. 18, the allegations in plaintiff’s complaint, Docket No. 1, are deemed admitted. Olcott v. Del. Flood Co., 327 F.3d 1115, 1125 (10th Cir. 2003). The United States brings this lawsuit to reduce to judgment federal tax liabilities assessed against defendant Kyle Bauer (“Bauer”) and to foreclose federal tax liens on Bauer’s property, located at 749 and 751 E. 8th Street, Akron, Colorado 80720. Docket No. 1 at 1, ¶ 1.

         During the time periods relevant to this case, Bauer conducted business under the name of Bauer Construction, a sole proprietorship. Id. at 3, ¶ 11. Based on Bauer’s failure to file (a) a Form 1040 Individual Income Tax Return for the tax year ending on December 31, 2002, (b) a Form 941 Employer’s Quarterly Federal Tax Return on behalf of Bauer Construction for the quarterly tax periods ending on December 31, 2006 and March 31, 2007, and (c) a Form 940 Employer’s Annual Federal Unemployment (FUTA) Tax Return on behalf of Bauer Construction for the tax year ending on December 31, 2006, a duly authorized delegate of the Secretary of the Treasury made assessments against Bauer for the unpaid tax liabilities. Id. at 3-4, ¶¶ 13-20; see also Docket No. 28 at 2-3, ¶¶ 4, 6-8. According to the assessments, Bauer owes $65, 255.64 in unpaid taxes, penalties, and interest. Docket No. 1 at 4-5, ¶ 21.

         Plaintiff filed this lawsuit on January 5, 2018. Docket No. 1. Count One of the complaint seeks to reduce to judgment the unpaid federal income tax assessments made against Bauer. Id. at 5-6, ¶¶ 22-23. Count Two requests a judgment against Bauer based on the unpaid federal employment tax assessments. Id. at 6, ¶¶ 24-25. Count Three seeks to foreclose federal tax liens on Bauer’s property and requests a decree of sale pursuant to 26 U.S.C. § 7403(c). Id. at 6-7, ¶¶ 26-32.

         On March 30, 2018, plaintiff filed a Motion to Extend Time for Service and to Serve By Publication [Docket No. 9], wherein plaintiff stated that it had been unable to locate and serve Bauer despite diligent efforts and requested leave to serve Bauer by publication pursuant to Fed.R.Civ.P. 4(e)(1) and Colo. R. Civ. P. 4(g). Docket No. 9 at 4-5. On April 2, 2018, the magistrate judge granted the motion. Docket No. 11. In addition to requiring service by publication, the magistrate judge ordered plaintiff to mail a copy of the complaint and summons to Bauer at 751 E. 8th Street, Akron CO 80720. Docket No. 11 at 2. On May 24, 2018, plaintiff filed proof of publication and a declaration verifying that plaintiff had mailed a copy of the complaint and summons to Bauer’s properties at 749 and 751 E. 8th Street. See Docket Nos. 14, 15. After Bauer failed to appear in this action, plaintiff moved for entry of default under Fed.R.Civ.P. 55(a). Docket No. 16. The Clerk of Court entered default on June 15, 2018, Docket No. 18, and on October 22, 2018, plaintiff filed a motion for default judgment under Fed.R.Civ.P. 55(b). Docket No. 27.

         II. LEGAL STANDARD

         In order to obtain a judgment by default, a party must follow the two-step process described in Fed.R.Civ.P. 55. First, the party must seek an entry of default from the Clerk of the Court under Rule 55(a). Second, after default has been entered by the Clerk, the party must seek judgment under the strictures of Rule 55(b). See Williams v. Smithson, 57 F.3d 1081, 1995 WL 365988, at *1 (10th Cir. June 20, 1995) (unpublished table decision) (citing Meehan v. Snow, 652 F.2d 274, 276 (2d Cir. 1981)).

         The decision to enter default judgment is “committed to the district court’s sound discretion.” Olcott, 327 F.3d at 1124 (citation omitted). In exercising that discretion, the Court considers that “[s]trong policies favor resolution of disputes on their merits.” Ruplinger v. Rains, 946 F.2d 731, 732 (10th Cir. 1991) (quotation and citations omitted). “The default judgment must normally be viewed as available only when the adversary process has been halted because of an essentially unresponsive party.” Id. It serves to protect plaintiffs against “interminable delay and continued uncertainty as to his rights.” Id. at 733. When “ruling on a motion for default judgment, the court may rely on detailed affidavits or documentary evidence to determine the appropriate sum for the default judgment.” Seme v. E&H Prof’l Sec. Co., Inc., No. 08-cv-01569-RPM- KMT, 2010 WL 1553786, at *11 (D. Colo. Mar. 19, 2010).

         A party may not simply sit out the litigation without consequence. See Cessna Fin. Corp. v. Bielenberg Masonry Contracting, Inc., 715 F.2d 1442, 1444-45 (10th Cir. 1983) (“[A] workable system of justice requires that litigants not be free to appear at their pleasure. We therefore must hold parties and their attorneys to a reasonably high standard of diligence in observing the courts’ rules of procedure. The threat of judgment by default serves as an incentive to meet this standard”). One such consequence is that, upon the entry of default against a defendant, the well-pleaded allegations in the complaint are deemed admitted. See Charles Wright, Arthur Miller & Mary Kane, Fed. Prac. & Proc. § 2688 (3d ed. 2010). “Even after default, however, it remains for the court to consider whether the unchallenged facts constitute a legitimate cause of action, since a party in default does not admit mere conclusions of law.” Id. at 63. A court need not accept conclusory allegations. Moffett v. Halliburton Energy Servs., Inc. 291 F.3d 1227, 1232 (10th Cir. 2002). Although “[s]pecific facts are not necessary” in order to state a claim, Erickson v. Pardus, 551 U.S. 89, 93 (2007) (per curiam) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)), the well-pleaded facts must “permit the court to infer more than the mere possibility of misconduct.” Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009) (internal quotation and alteration marks omitted). Thus, even though modern rules of pleading are somewhat forgiving, “a complaint still must contain either direct or inferential allegations respecting all the material elements necessary to sustain a recovery under some viable legal theory.” Bryson v. Gonzales, 534 F.3d 1282, 1286 (10th Cir. 2008) (quotation and citation omitted).

         III. ANALYSIS

         Before addressing the merits of plaintiff’s motion for default judgment, the Court must determine whether it has jurisdiction over this case. See Dennis Garberg & Assocs., Inc. v. Pack-Tech Int’l Corp., 115 F.3d 767, 772 (10th Cir. 1997) (holding that “a district court must determine whether it has jurisdiction over the defendant before entering judgment by default against a party who has not appeared in the case”). The Court has subject matter jurisdiction because this is an action by the United States to reduce to judgment federal tax liabilities and foreclose on federal tax liens. See 26 U.S.C. §§ 7402(a), 7403; 28 U.S.C. §§ 1340, 1345. Regarding the issue of personal jurisdiction, plaintiff alleges that Bauer resides in the District of Colorado. See Docket No. 1 at 2, ¶ 4; see also United States v. Olsen, No. 14-cv-03302-WJM-KLM, 2016 WL 322554, at *2 (D. Colo. Jan. 27, 2016). However, whether the Court has personal jurisdiction over Bauer also depends on whether service of process was adequate. Holcim (US) Inc. v. Limerock Materials, LLC, No. 11-cv-00686-REB-CBS, 2012 WL 4442757, at *4 (D. Colo. Sept. 26, 2012).

         Relying on Fed.R.Civ.P. 4(e)(1) and Colo. R. Civ. P. 4(g), plaintiff served Bauer by publication from April 18, 2018 through May 16, 2018, Docket No. 14; Docket No. 27 at 2, ¶ 4, and mailed a copy of the complaint and summons to Bauer’s property at 749 and 751 E. 8th Street, Akron, CO 80720. Docket No. 15 at 1, ¶ 2; Docket No. 27 at 2, ¶ 5. While these measures may have been adequate to perfect service under Colo. R. Civ. P. ...


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