Music Deli & Groceries, Inc. v. IRS, 90 Civ. 4180 (RWS).

• Decision Date: 27 December 1991
• Docket Number: No. 90 Civ. 4180 (RWS).,90 Civ. 4180 (RWS).
• Citation: 781 F. Supp. 992
• Parties: MUSIC DELI & GROCERIES, INC. and Mahmoud Shams, Plaintiffs, v. INTERNAL REVENUE SERVICE, DISTRICT OF MANHATTAN, Defendant.
• Court: U.S. District Court — Southern District of New York

781 F. Supp. 992

MUSIC DELI & GROCERIES, INC. and Mahmoud Shams, Plaintiffs, v. INTERNAL REVENUE SERVICE, DISTRICT OF MANHATTAN, Defendant.

No. 90 Civ. 4180 (RWS).

United States District Court, S.D. New York.

December 27, 1991.

COPYRIGHT MATERIAL OMITTED

Rosenman & Colin, New York City (David A. Slossberg, of counsel), for plaintiffs.

Otto G. Obermaier, U.S. Atty., S.D.N.Y., New York City (Claude M. Millman, Asst. U.S. Atty., of counsel), for defendant.

OPINION

SWEET, District Judge.

Plaintiffs Music Deli & Groceries, Inc. ("Music Deli") and Mahmoud Shams ("Shams"; collectively the "Plaintiffs") have moved pursuant to Rule 60(b) of the Federal Rules of Civil Procedure for an order vacating the prior judgment in this action and pursuant to Rule 15 for leave to file an amended and supplemental complaint. For the reasons set forth below, the motions are granted and the Plaintiffs' First Amended and Supplemental Complaint ("Amended Complaint") deemed filed. The Amended Complaint, however, is dismissed in part pursuant to Rule 12(b)(6) for failure to state a claim upon which relief may be granted, with leave to replead.

The Parties

Music Deli is a corporation organized under the laws of New York State with its principal place of business on Eighth Avenue in Manhattan. The corporation was formed to run a delicatessen/grocery business (the "Deli") that is no longer in active operation.

Shams is a citizen and resident of New Jersey.

The Internal Revenue Service (the "Service") is an agency of the federal government. The Service allegedly seized and sold the contents of the Deli to satisfy a tax assessment.

Facts¹ and Prior Proceedings

Shams is a refugee from Afghanistan who fled to the United States in 1981 after the Soviet Union's invasion. He became a citizen of the United States in 1988.

In 1984, Shams and two others decided to invest in the Deli. They each paid $20,000 in cash, with the balance of the $131,000 purchase price secured through a three-year promissory note. Shams bought out his two partners in 1986 for $12,000 each. Thereafter, Shams operated the Deli by himself. He worked from six in the morning till eleven at night, seven days a week, eking out a living.

The present dispute has its roots in 1987. That year, the Service notified Shams that he had not filed and paid Employer Quarterly Tax Returns and Employer Annual Federal Unemployment Tax Returns for 1985, 1986, and 1987 in a timely manner. Shams apparently contacted the Service and explained that he had paid sales taxes and that, because the Deli had no other employees, he did not believe he was required to pay employer taxes.

The Service informed Shams that he was required to declare himself an employee, pay taxes, and file the two forms if he took wages from the Deli. In 1988, the Service seized the Deli and its contents, only to release it upon the condition that Shams appear at the Service, file the forms, and make the payments. Shams did as requested, filing forms for 1985 through 1988.

The filing was deemed incomplete by the Service and an assessment of $6,591.05 entered. Shams then filed amended returns in 1989 at the Service's behest. His liability was actually less than the original assessment, so the Service agreed to a number of downward adjustments. With penalties, the total tax liability allegedly is over $23,000. Shams claims to have paid more than $5,000 toward settling the account.

On May 25, 1990, the Service obtained an ex parte order permitting it to seize the contents of the Deli. The order was carried out on May 29, with Shams being barred from the premises and the locks changed. Shams contends that he never received notice of the Service's intention to seize and levy the Deli.

Shams brought an order to show cause, pro se, on June 20, 1990, seeking to enjoin the Service from seizing and selling the Deli and its contents. This Court dismissed the complaint on July 2, 1990, on two grounds. First, because Music Deli was a corporation, the complaint was dismissed for lack of corporate representation. Second, the Anti-Injunction Act, 26 U.S.C. § 7421, barred this Court from granting the injunction sought. The clerk entered judgment against the Plaintiffs and no appeal was brought.

The Deli and its contents were sold at public auction on July 24, 1990. That day, Shams wrote to the Court asking that pro bono counsel be appointed. This request was granted on August 2, 1991, and a Notice of Appearance filed on October 23, 1990. Various conferences took place thereafter, and discovery was conducted. As a result of discovery, the Plaintiffs now claim that no certified mail receipt regarding the notice of seizure in May 1990 can be found in the Service's administrative file, even though receipts do exist for other mailings.

The present motion was filed on July 2, 1991. Oral argument was heard on November 7, 1991, and the motion considered submitted as of that date.

Discussion

I. The Prior Judgment is Vacated

The Plaintiffs argue that the prior judgment should be vacated on account of newly discovered evidence and in the interests of justice. The Service argues that any new evidence would not change the outcome of the prior judgment and that there are no extraordinary circumstances warranting such relief.

Rule 60(b) of the Federal Rules of Civil Procedure provides:

On motion and upon such terms as are just, the court may relieve a party or a party's legal representative from a final judgment, order, or proceeding for the following reasons: (1) mistake, inadvertence, surprise, or excusable neglect; (2) newly discovered evidence which by due diligence could not have been discovered in time to move for a new trial under Rule 59(b); (3) fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party; (4) the judgment is void; (5) the judgment has been satisfied, released, or discharged, or a prior judgment upon which it is based has been reversed or otherwise vacated, or it is no longer equitable that the judgment should have prospective application; or (6) any other reason justifying relief from the operation of the judgment. The motion shall be within a reasonable time, and for reasons (1), (2), and (3) not more than one year after the judgment, order, or proceeding was entered or taken....

Fed.R.Civ.P. 60(b).²

"Properly applied Rule 60(b) strikes a balance between serving the ends of justice and preserving the finality of judgments. In other words it should be broadly construed to do `substantial justice,' yet final judgments should not `be lightly reopened.'" Nemaizer v. Baker, 793 F.2d 58, 61 (2d Cir.1986) (citations omitted) (quoting Seven Elves, Inc. v. Eskenazi, 635 F.2d 396, 401 (5th Cir.1981)). A motion under Rule 60(b) is directed to the "sound discretion" of the district court. Id.; see also Matarese v. Le Fevre, 801 F.2d 98, 106-07 (2d Cir.1986), cert. denied, 480 U.S. 908, 107 S.Ct. 1353, 94 L.Ed.2d 523 (1987); United States v. Cirami, 563 F.2d 26 (2d Cir.1977).

The Plaintiffs base their Rule 60(b) motion in part on the apparent absence of a certified mail receipt in the Service's administrative file for the notice of seizure. Under IRC § 6331(d), a taxpayer's property may not be levied unless notice has been given no less than 30 days prior to the levy date. Notice may be given in person, left at a dwelling or usual place of business, or sent by certified or registered mail. If the alleged absence of a receipt is true, then the seizure and levy taken upon the Deli were not performed properly.

The Service first contends that this evidence is not "newly discovered" since the Plaintiffs contended at oral argument on the original complaint that notice of the levy had never been received. However, under the circumstances of the original hearing, the Plaintiffs were not able to offer any proof substantiating this contention. In fact, the alleged absolute absence of any evidence showing that the Plaintiffs had been notified of the levy was not uncovered until after the original complaint was dismissed. Therefore it can be viewed as newly discovered.

The Service next contends that even if this is so, the prior opinion was correct in that the Plaintiffs were not entitled to relief under the Anti-Injunction Act and that the judgment thus should not be reopened. While Plaintiffs do not contest the prior ruling under the Anti-Injunction Act, they do argue that the original complaint can be construed as seeking a claim for damages in law and that such evidence is material to any claim the Plaintiffs may have in law.

This contention goes to the Plaintiffs' original status in the prior proceeding. Shams drafted the original complaint and appeared pro se. Of course, "it is settled law that the allegations of such a complaint, `however inartfully pleaded' are held `to less stringent standards than formal pleadings drafted by lawyers....'" Hughes v. Rowe, 449 U.S. 5, 9, 101 S.Ct. 173, 176, 66 L.Ed.2d 163 (1980) (per curiam) (quoting Haines v. Kerner, 404 U.S. 519, 520, 92 S.Ct. 594, 596, 30 L.Ed.2d 652 (1972)); see also Elliott v. Bronson, 872 F.2d 20, 21 (2d Cir.1989).

The last sentence of the original complaint reads: "As a remedy I sought sic release of property of Music Deli & Groceries, Inc." Although this appears to seek only injunctive relief, other portions of the complaint can be read as alleging wrongs for which the proper remedy is damages. Since whether Shams had received notice of the impending seizure and levy would go to the heart of any claim for damages that he might have, the absence of the receipt within the Service's files is newly discovered evidence within the scope of Rule 60(b)(2).

Shams's pro se status during the original hearing mandates granting the requested relief under Rule 60(b)(1) as well.³ The policy in favor of hearing a plaintiff's claim on the merits is strong, Kotlicky v. United States Fidelity & Guaranty Co., 817...