United States v. Kerr
| Decision Date | 28 March 2022 |
| Docket Number | CV-19-05432-PHX-DJH |
| Parties | United States of America, Plaintiff, v. Stephen M Kerr, Defendant. |
| Court | U.S. District Court — District of Arizona |
Pending before the Court are cross Motions for Summary Judgment filed by Plaintiff United States of America (“Plaintiff”) (Doc. 46) and Defendant Stephen Kerr (“Mr. Kerr”) (Doc. 47). The parties have filed their respective Responses and Replies, and the matter is now fully briefed.[1] For the following reasons, the Court will remand most but not all of the penalties to the IRS and enter judgment against Mr. Kerr in the amount of $240, 985.
A United States person with a foreign bank account worth more than $10, 000 must file a yearly Report of Foreign Bank and Financial Accounts (“FBAR”) with the Internal Revenue Service (“IRS”). 31 U.S.C. § 5314; 31 C.F.R. §§ 1010.350, 1010.306(c). Willful failure to file an FBAR can result in both civil and criminal penalties. 31 U.S.C. §§ 5321(a)(5)(C), 5322(a). In 2013, Mr. Kerr was criminally convicted for willfully failing to file FBARs in the 2007 and 2008 reporting years. United States v. Kerr, 2013 WL 4430917, at *14 (D Ariz. Aug. 16, 2013) (), aff'd United States v. Quiel, 595 Fed.Appx. 692, 694 (9th Cir. 2014). This matter concerns the civil penalties for FBAR violations, which the IRS originally assessed in 2014 (the “Original Assessment”). (Doc. 46-31).
The Original Assessment took into consideration bank records for five different accounts (the “Five Accounts”) over the 2007 and 2008 reporting years. Based on the IRS' estimated value of the Five Accounts, the IRS calculated a total civil penalty of $3.8 million against Mr. Kerr. (Doc 19 at 5-6).
Previously the parties sought summary judgment from the Court to determine, under the doctrine of collateral estoppel, what preclusive effect Mr. Kerr's prior criminal conviction has on this case. (Doc. 17). The Court held that Mr. Kerr would be estopped from challenging that he willfully failed to file FBARs with respect to all but one of the Five Accounts, as four were referenced in Counts 6 and 7 of the prior criminal Indictment. (Doc. 26 at 5). The one account excluded from this was a Swiss account ending in -734. (Id. at 6). The -734 account was used to deposit 100, 000 Swiss Francs with the Union Bank of Switzerland AG (“UBS”), which Swiss law required before opening a capital deposit account. For this reason, the parties refer to the -734 account as the “Placeholder Account.” (Id. at 2).
Plaintiff now seeks summary judgment on whether Mr. Kerr willfully failed to file an FBAR for the Placeholder Account and a judgment against Mr. Kerr to enforce a civil penalty in the amount of $2, 225, 574 for willful failure to file FBARs for the Five Accounts. (Doc. 46 at 6). This amount is significantly lower than the Original Assessment's penalty of $3.8 million. Plaintiff concedes that it cannot seek the $3.8 million penalty because the IRS erred in calculating this figure. (Id. at 6). Therefore, Plaintiff asks the Court to enter judgment on a newly calculated penalty. Mr. Kerr seeks summary judgment remanding the Original Assessment to the IRS for further investigation or explanation. He also seeks summary judgment on the issue of whether he willfully failed to file an FBAR for the Placeholder account and on the issue of whether the penalties violate the Eighth Amendment's excessive fine clause.
II. Legal Standard
A court will grant summary judgment if the movant shows there is no genuine dispute of material fact and the movant is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a); Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). A factual dispute is genuine when a reasonable jury could return a verdict for the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). Here, a court does not weigh evidence to discern the truth of the matter; it only determines whether there is a genuine issue for trial. Jesinger v. Nevada Fed. Credit Union, 24 F.3d 1127, 1131 (9th Cir. 1994). A fact is material when identified as such by substantive law. Anderson, 477 U.S. at 248. Only facts that might affect the outcome of a suit under the governing law can preclude an entry of summary judgment. Id.
The moving party bears the initial burden of identifying portions of the record, including pleadings, depositions, answers to interrogatories, admissions, and affidavits, that show there is no genuine factual dispute. Celotex, 477 U.S. at 323. Once shown, the burden shifts to the non-moving party, which must sufficiently establish the existence of a genuine dispute as to any material fact. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 585-86 (1986). The evidence of the non-movant is “to be believed, and all justifiable inferences are to be drawn in his favor.” Anderson, 477 U.S. at 255. But if the non-movant identifies “evidence [that] is merely colorable or is not significantly probative, summary judgment may be granted.” Id. at 249-50 (citations omitted). “A conclusory, self-serving affidavit, lacking detailed facts and any supporting evidence, is insufficient to create a genuine issue of material fact.” F.T.C. v. Publ'g Clearing House, Inc., 104 F.3d 1168, 1171 (9th Cir. 1997), as amended (Apr. 11, 1997).
III. Analysis
The Court begins by discussing if there is a genuine dispute of fact as to whether Mr. Kerr willfully failed to file an FBAR for the Placeholder Account. a. Willful Failure to File an FBAR for the Placeholder Account
To show a willful failure to file an FBAR, Plaintiff must show (1) Mr. Kerr is a United States person, such as a citizen; (2) that Mr. Kerr had “a financial interest in, or signature or other authority over” the account; (3) that the account's balance exceeded $10, 000 during the reporting period; and (4) that the failure to file the FBAR was willful. 31 U.S.C § 5314 (); 31 C.F.R. §§ 1010.306, 1010.350; United States v. Pomerantz, 2017 WL 2483213, at *5 (W.D. Wash. June 8, 2017). Mr. Kerr admitted in his Answer that he is a United States person and that he willfully failed to file an FBAR in 2007 and 2008. (Doc. 9 at ¶¶ 13, 42). There is also no dispute that the Placeholder Account's value exceeded $10, 000. The only element that Mr. Kerr disputes is whether he had an interest or other authority over the Placeholder Account. (Doc. 49 at 13).
There are several ways by which one may have an interest or other authority over an account. If the account's owner of record or title holder is named as an agent, the principal has an interest. 31 C.F.R. § 1010.350(e)(2)(i). In addition, a person may have “other authority” over an account if that person has the authority “(alone or in conjunction with another) to control the disposition of money, funds or other assets held in a financial account by direct communication (whether in writing or otherwise) to the person with whom the financial account is maintained.” 31 C.F.R. § 1010.350(f)(1).
Here, the Placeholder Account was held by Red Rock Investment, AG (“Red Rock”) (Docs. 46-29 at 3). The parties agree that Red Rock was a Swiss corporation that Mr. Kerr's lawyer created on his behalf to help facilitate European investment in Mr. Kerr's American businesses. (Docs. 46 at 7; 46-6 at 37; 47 at 3). Plaintiff argues Mr. Kerr exerted control over Red Rock, such that a duty to file an FBAR would arise under §§ 1010.350(e) or (f). This control, Plaintiff argues, was conclusively established in the prior criminal conviction, where Mr. Kerr was found to have the requisite interest or other authority over another UBS account held in Red Rock's name. (Doc. 46 at 15). Therefore, Plaintiff argues, Mr. Kerr is precluded from challenging that he had an interest or other authority over the Placeholder Account under §§ 1010.350(e) or (f). (Id.)
Mr. Kerr, in response, argues that the Court's prior Order held he would not be precluded from challenging this finding. (Doc. 49 at 13-18). But Mr. Kerr misinterprets the Court's prior Order, which held the jury in the prior criminal matter did not necessarily decide “that Mr. Kerr willfully failed to file an FBAR” for the Placeholder Account. (Doc. 26 at 6). The Court has not, until now, discussed whether Mr. Kerr was precluded from challenging his interest or authority over accounts held by Red Rock.
To apply the doctrine of collateral estoppel on an issue from a criminal trial: “(1) the prior conviction must have been for a serious offense so that the defendant was motivated to fully litigate the charges; (2) there must have been a full and fair trial to prevent convictions of doubtful validity from being used; (3) the issue on which the prior conviction is offered must of necessity have been decided at the criminal trial; and (4) the party against whom the collateral estoppel is asserted was a party or in privity with a party to the prior trial.” United States v. Real Prop. Located at Section 18, 976 F.2d 515, 518 (9th Cir. 1992) (citing Ayers v. City of Richmond, 895 F.2d 1267, 1271 (9th Cir. 1990)). Of note, the third requirement's purpose is to ensure the prior case's factfinder carefully reviewed the issue at stake. United States v. Weems, 49 F.3d 528, 532 (9th Cir. 1995).
As discussed in the Court's prior Order, the parties do not dispute the first, second, and fourth elements of the collateral estoppel test. (Doc. 26 at 3) (citing Docs. 19 at 14, 20; 20 at 3)). The question, then, is whether the jury at...
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