In re Williams
| Decision Date | 14 April 1995 |
| Docket Number | Bankruptcy No. 90-12125. Adv. No. 91-1047. |
| Parties | In re Lawrence G. WILLIAMS, Debtor. Lawrence G. WILLIAMS, Plaintiff, v. UNITED STATES of America, Internal Revenue Service, et al., Defendants. |
| Court | United States Bankruptcy Courts. First Circuit. U.S. Bankruptcy Court — District of Rhode Island |
Dennis L. Stein, Gerard Riso, Kurtzman, Haspel & Stein, Spring Valley, NY, Andrew Richardson, Boyajian, Harrington & Richardson, Providence, RI, for debtor/plaintiff.
Charles J. Cannon, Trial Atty., Tax Div. U.S. Dept. of Justice, Washington, DC, for defendants.
Sheryl Serreze, Office of U.S. Trustee, Providence, RI.
DECISION AND ORDER CONVERTING CASE TO CHAPTER 7, AND GRANTING PARTIAL RELIEF ON DEBTOR'S REQUEST FOR SANCTIONS AGAINST THE INTERNAL REVENUE SERVICE
Heard on January 20, 23, and 25, 1995, on:
(1) the United States Trustee's Motion to Convert the case to one under Chapter 7; and
(2) the Debtor/Plaintiff's motion against the IRS for default judgment on the merits, or for preclusion, and for monetary sanctions pursuant to Fed.R.Civ.P. 37(b), based on the Defendant's alleged failure and/or refusal to comply with discovery orders. Because it has attracted so much of the parties' attention, and required by far the most consideration, we will first address the Plaintiff's Rule 37 motion.1
Rule 37(b) allows the Court to sanction a party who has not complied with discovery orders in a pending action. Made applicable in adversary proceedings by Fed.R.Bankr.P. 7037, the Rule states in pertinent part:
Fed.R.Civ.P. 37(b). Because of the Government's alleged failure and/or refusal to provide documents as ordered, coupled with the autocratic and unprofessional conduct of its agents throughout the discovery process, the Plaintiff would like a default judgment on the merits of his complaint against the IRS, or alternatively an order precluding, at trial, the introduction of certain evidence, and monetary sanctions. The United States denies the allegations, asserting that it has attempted "in good faith to comply with all discovery orders," and that "there is no evidence of any willful conduct or misconduct on behalf of the United States."
The IRS also notes that the Plaintiff has only recently advanced a new theory in its case, since the filing of the January 11, 1995 Tax Court decision, Manko v. Commissioner, 69 T.C.M. (CCH) 1636, 1995 WL 39228 (1995), and that it should not be sanctioned for failing to produce documents based on arguments not previously asserted. As to this last point, we are in full agreement, and assure the Defendant, the United States, that any effect the Manko decision may have on this proceeding will be no part of our consideration herein. Finally, the IRS argues (incorrectly) that it was the Plaintiff who failed to comply2 with Fed.R.Civ.P. 26(a), which requires the production of information without a formal request. By Temporary Procedural Order dated February 8, 1994, this Court opted not to apply the 1993 amendments to Fed.R.Civ.P. 26 to adversary proceedings, and therefore those informal disclosure requirements are inapplicable.
In any event, based upon our consideration of the entire record, including the demeanor and credibility of the witnesses, the memoranda submitted, and the arguments of counsel, we find that throughout the long pendency of this adversary proceeding the Defendant has repeatedly and deliberately violated Rule 37(b). We also find and conclude that the IRS's failure to comply with outstanding discovery orders was not substantially justified, that there are no other circumstances that would make an award of expenses unjust, and that sanctions are definitely in order. The only real issue is the amount and/or kind of sanctions that are appropriate, on the facts before us.
Because this matter has been so vigorously contested and extensively litigated, our decision to impose sanctions calls for some elaboration. We begin with a brief chronology of the relevant events. On December 3, 1990, Lawrence Williams filed a Chapter 11 petition, and on February 21, 1991, he brought the instant adversary proceeding against the Internal Revenue Service, seeking a determination of his federal tax liability for the years 1978 through 1988, and 1990. On September 9, 1991, the IRS filed a proof of claim in excess of $6.5 million dollars for the tax years in question, challenging certain deductions taken by Williams in his various partnership and limited partnership interests. Williams argues that he owes substantially less than what is asserted in the IRS proof of claim, and also contends that he has no liability for several of the tax years in question, on the ground that the statute of limitations prohibits the collection of such taxes.
On April 30, 1991, Williams served his first request for production of documents, with a compliance deadline of May 31, 1991. The IRS did not respond, and on June 10, 1991, Williams filed a Motion to Compel Production. At this juncture, having defaulted, the IRS technically lacked standing to object to either the scope or the content of the Plaintiff's requests. See Fed.R.Bankr.P. 7034. Nevertheless, on June 18, 1991, the IRS filed a somewhat puzzling response to the motion, characterizing the already granted requests as "burdensome," but also stating that it "would produce documents relating to Lawrence Williams if they were in its possession." And then, on June 25, 1991, the IRS filed an Objection to the Motion to Compel, on the even more curious ground that it had "filed its response to the request for production on June 18, 1991." On July 18, 1991, notwithstanding that its rights on the issue had expired, and for reasons that now escape us, a hearing was held on the Motion to Compel, we heard the IRS's excuses, and granted additional time to provide the overdue documents. Nothing happened. On January 7, 1992, after even further hearing,3 we overruled its objections and ordered the IRS to produce all requested documents within 45 days. (See Joint Exhibit 1, January 14, 1992 Order). Again, IRS did nothing, and on May 22, 1992, Williams filed the instant motion for default judgment, preclusion, and monetary sanctions.
The Plaintiff's May 22, 1992, pleading apparently did attract the Government's attention, and nine weeks later,4 on July 30, 1992, D. Patrick Mullarkey, Esq., of the Department of Justice wrote to Plaintiff's counsel directing him to Charles J. Cannon, Esq., the IRS's designated trial attorney in this proceeding, for permission to view "ten linear feet" of documents on file at the IRS North Atlantic Region Office in New York City. (See IRS Exhibit 65). Stein contacted Cannon, as he was advised to do, and was told by Cannon to call William Blagg, Esq., of the Manhattan IRS District Office, to arrange to examine the files in question. Stein testified that he made repeated attempts to contact Blagg, and logged more than 100 telephone calls over the ensuing months, just to make an appointment to get to see the documents in question. Blagg did not contradict this description of events, and conceded that his relationship with Stein was unfriendly, at best.5 Finally, nearly four months after Mr. Mullarkey's letter, Blagg agreed to permit the document examination on November 20, 1992, in Manhattan. Stein testified that when he arrived at the IRS on that date, Blagg produced an obviously incomplete amount of material for inspection, and that only after considerable arguing and a call to Charles Cannon was Stein allowed access to "an additional six linear feet of documents." Stein testified that there were no documents relating to the Arbitrage Management Project6 in the materials produced for inspection, and that Blagg represented to him that there were no such documents. At the end of the day, Stein handed Blagg a small packet of material to be copied and mailed to him. He also left with Blagg a separate list of the documents still due under his initial 1991 discovery request. (See IRS Exhibit 68). Ten days to two weeks is the most it should have taken to supply all of this material. In classic bureaucratic style, however, it took Blagg over three months to copy and mail the documents. (See Testimony of Dennis Stein and Joint Exhibit 57). Mr. Blagg explained that there was only one secretary for three attorneys in his office, and that she just could not attend to this particular task any sooner. In those circumstances, if true, Mr. Blagg should have either rolled up his sleeves and made the copies himself, or delegated the job to somebody else. We find Mr. Blagg's conduct to be intentional, unprofessional, and unjustified,7 and his shifting the blame to his secretary is pure baloney.
Blagg's attitude problem surfaces again on January 13, 1993, in his letter to Mr. Cannon regarding the material requested by Stein at the November 20, 1992 meeting. (See IRS...
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