Hanse v. United States, Case No. 17-cv-4573

CourtUnited States District Courts. 7th Circuit. United States District Court (Northern District of Illinois)
Writing for the CourtJudge Robert M. Dow, Jr.
PartiesFRANCK HANSE, Petitioner, v. UNITED STATES OF AMERICA, Respondent.
Docket NumberCase No. 17-cv-4573
Decision Date05 March 2018

FRANCK HANSE, Petitioner,
v.
UNITED STATES OF AMERICA, Respondent.

Case No. 17-cv-4573

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION

March 5, 2018


Judge Robert M. Dow, Jr.

MEMORANDUM OPINION AND ORDER

Before the Court is Respondent the United States of America's ("Respondent's") motion [12] to dismiss Petitioner Franck Hanse ("Petitioner's") petition to quash IRS summons for failure to state a claim or, alternatively, for summary judgment. For the reasons explained below, Respondent's motion [12] is granted, and summary judgment is granted in favor of Respondent. The Court will enter a final judgment and close the case.

I. Background

Petitioner is the subject of an investigation by the French tax authorities relating to his potential income tax and wealth tax liabilities for the tax years ending in 2013, 2014 and 2015. [12, Exhibit 2 (Palacheck Decl.), ¶ 4.] On September 7, 2016, pursuant to a treaty between the United States and France,1 the French tax authorities sent the IRS an exchange-of-information

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request seeking information related to these investigations. [Id., ¶ 3.] Specifically, the French tax authorities requested information relating to two transfers of funds totaling over 500,000 euros from Petitioner to a client trust account maintained by the law firm of Marc D. Sherman & Colleagues, P.C. ("Sherman"). [Id., ¶¶ 6-7.]

The request stated that Petitioner was a French citizen domiciled in France; that the request was in conformity with the laws and practices of the French tax administration; and that the French tax authorities exhausted all means available in France to obtain the information that it was seeking. [Id., ¶¶ 5, 11, 13.] The information sought in the request was not in the possession of the IRS, and there was a reasonable basis to believe that the summonsed records may contain information relevant to the French tax authorities' investigation into Petitioner's French tax liabilities. [Id., ¶¶ 11, 14.] Deborah Palacheck, designated as the United States Competent Authority under tax treaties and tax information exchange agreements, determined that this request from France was proper under the provisions of the U.S.-France Treaty and that it was appropriate to honor the request. [Id., ¶¶ 1, 16.] Therefore, pursuant to the request and Respondent's obligations under the U.S.-France Treaty, an IRS agent personally served a summons on Sherman on June 1, 2017. [12, Exhibit 1 (Bjorvik Decl.), ¶ 2.] The summons requests nine categories of documents relating to the French income and wealth tax liabilities of Petitioner and, specifically, the euro transfers from Petitioner to Sherman. [1, Exhibit A (IRS Summons), at 5.] The summons names the time for production of the documents as July 5, 2017. [Id., at 1.] Notice of the summons was also sent via certified mail on June 2, 2017 to those named in the summons (Petitioner and Byline Bank). [12, Exhibit 2 (Palacheck Decl.), at Exhibits B-C]. The notice was sent to Petitioner at the French address provided by the French

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authorities after the IRS searched its own records and did not find any additional addresses in its files for Petitioner. [Id., ¶¶ 8-10.]

On June 19, 2017, Petitioner filed a timely petition to quash the IRS summons to Sherman pursuant to I.R.C. § 7609(b)(2). [See 1.] The petition raises three objections to the IRS summons. First, Petitioner contends that the IRS did not comply with the administrative steps required by the Internal Revenue Code. [Id., ¶ 9.] Specifically, Petitioner states that the IRS (1) contacted third parties regarding his tax liabilities without providing advance notice to Petitioner as required by I.R.C. § 7602(c)(1) and 26 C.F.R. § 301.7602-2(d)(1), and (2) did not provide notice to petitioner of the summons as required by I.R.C. § 7609(a)(1). [Id., ¶¶ 7-8.] Second, Petitioner contends that France may not be able to obtain, through its own laws, the information sought in the IRS summons because he is not a French resident, and the U.S.-France Treaty does not require the United States to supply information that is not obtainable under the laws of France. [Id., ¶ 10.] Finally, Petitioner states that because Sherman is a law firm, some of the materials requested are protected from disclosure by attorney-client privilege. [Id., ¶ 11.] Respondent thereafter filed a motion [12] to dismiss the petition or, alternatively, for summary judgment, which is currently before the Court.

II. Legal Standard

Respondent has moved to dismiss the petition under Federal Rule of Civil Procedure ("Rule") 12(b)(6) or, alternatively, for summary judgment under Rule 56 if the Court determines that the motion expands the scope of the pleadings. [See 12.] In ruling on a Rule 12(b)(6) motion, if "matters outside the pleadings are presented to and not excluded by the court, the motion must be treated as one for summary judgment under Rule 56." Fed. R. Civ. P. 12(d). Under such a scenario, "[a]ll parties must be given a reasonable opportunity to present all the

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material that is pertinent to the motion." Id. Here, both Petitioner and Respondent have had reasonable opportunity to present such material, given that Respondent titled its motion as a "Motion to Dismiss Petition to Quash or, Alternatively, for Summary Judgment." Respondent also supported its motion with two declarations and included a statement of material facts as required by Local Rule 56.1(a).2 [See 12-1, at 1-3.] Petitioner clearly recognized that this Court might treat Respondent's motion as one for summary judgment, as he attached information outside of the pleadings to his opposition. [See 16, Exhibit A-B (Registration Cards from French Consulates in Geneva and Dubai)]. Moreover, Petitioner did not move for additional discovery pursuant to Rule 56(d) or request an evidentiary hearing on his petition to quash the summons. See 2121 Arlington Heights Corp. v. I.R.S., 109 F.3d 1221, 1226 (7th Cir. 1997) (petitioner may request evidentiary hearing on a petition to quash IRS summons, and whether hearing is needed is left to the district court's discretion). The Court will thus proceed on the motion as one for summary judgment. See Arns v. United States, 39 F. App'x 442, 444 (7th Cir. 2002) (affirming judgment of district court in similar case where the district court treated motion to dismiss or for summary judgment as a Rule 56 motion for summary judgment).

Summary judgment is proper where "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." See Fed. R. Civ. P. 56(a). In determining whether summary judgment is appropriate, the Court must construe all facts in a light most favorable to the non-moving party and draw all reasonable

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inferences in that party's favor (here, Petitioner). Majors v. Gen. Elec. Co., 714 F.3d 527, 532 (7th Cir. 2013) (citation omitted). Rule 56(a) "mandates the entry of summary judgment, after adequate time for discovery and upon motion, against any party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party would bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). In other words, the moving party may meet its burden by pointing out to the court that "there is an absence of evidence to support the nonmoving party's case." Id. at 325. To avoid summary judgment, the nonmoving party must go beyond the pleadings and "set forth specific facts showing that there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986) (internal quotation marks and citation omitted). "The mere existence of a scintilla of evidence in support of the plaintiff's position will be insufficient; there must be evidence on which the jury could reasonably find for the plaintiff." Id. at 252.

In the Northern District of Illinois, a party moving for summary judgment must file along with its motion a Local Rule 56.1(a) statement of undisputed facts, consisting of short numbered paragraphs and citations to affidavits or other parts of the record relied on to support the facts set forth in each paragraph. N.D. Ill. L.R. 56.1(a). In response, the party opposing the motion must file its own statement of undisputed facts in the same manner. N.D. Ill. L.R. 56.1(b). If the party opposing summary judgment fails to file such a statement, "[a]ll material facts set forth in [the moving party's statement] will be deemed to be admitted." N.D. Ill. L.R. 56.1(b)(3)(C); see also Raymond v. Ameritech Corp., 442 F.3d 600, 608 (7th Cir. 2006) (affirming district court's decision to admit the facts set forth in moving party's Local Rule 56.1 submission where nonmovant failed to timely respond). In this case, Respondent included a Local Rule 56.1(a) statement of material facts with its motion. [See 12-1, at 1-3.] Petitioner failed to file a Local

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Rule 56.1(b) statement of material facts with his response. Accordingly, the facts set forth in Respondent's statement are deemed admitted. See N.D. Ill. L.R. 56.1(b)(3)(C); see also Parra v. Neal, 614 F.3d 635, 636 (7th Cir. 2010).

III. Analysis

Petitioner has moved to quash the IRS summons issued to Sherman pursuant to I.R.C. § 7609(b)(2). The Internal Revenue Code grants the IRS power to issue summonses "[f]or the purpose of * * * determining the liability of any person for any internal revenue tax." I.R.C. § 7602(a)(2). The IRS may also issue summonses to obtain information for a treaty partner. See United States v. Stuart, 489 U.S. 353, 357 (1989); Lidas, Inc. v. United States, 238 F.3d 1076, 1081 (9th Cir. 2001). As a person entitled to notice of the summons to Sherman under I.R.C. § 7609(a), Petitioner is entitled to move a district court to quash the summons. I.R.C. § 7609(b)(2) (any person identified in the summons is entitled to notice thereof, and those entitled to...

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