United States v. Toth
| Decision Date | 29 April 2022 |
| Docket Number | 21-1009 |
| Parties | UNITED STATES of America, Appellee, v. Monica TOTH, Defendant, Appellant. |
| Court | U.S. Court of Appeals — First Circuit |
Jeffrey P. Wiesner, with whom Jennifer McKinnon and Wiesner McKinnon LLP were on brief, for appellant.
Jennifer M. Rubin, Tax Division, Department of Justice, with whom David A. Hubbert, Acting Assistant Attorney General, Francesca Ugolini, Tax Division, Department of Justice, and Bruce R. Ellisen, Tax Division, Department of Justice, were on brief, for appellee.
Before Barron, Chief Judge, Lynch and Lipez, Circuit Judges.
In 2013, the U.S. Internal Revenue Service ("IRS") ordered the imposition of a penalty of over $2 million against Monica Toth for willfully failing to report her Swiss bank account in violation of the Bank Secrecy Act ("Act"). See 31 U.S.C. § 5314(a). Toth contested the penalty and refused to pay it. The government filed this suit in the U.S. District Court for the District of Massachusetts to obtain a judgment against Toth for the full amount of the penalty and then moved for summary judgment against Toth. The District Court ruled for the government on that motion, and Toth now appeals. We affirm.
Congress passed the Act in 1970 to curb the use of foreign bank accounts to evade taxes. See Cal. Bankers Ass'n v. Shultz, 416 U.S. 21, 28-30, 94 S.Ct. 1494, 39 L.Ed.2d 812 (1974). The Act requires U.S. residents and citizens to file reports and keep records of certain relationships with foreign financial agencies. 31 U.S.C. § 5314(a).
U.S. Department of Treasury ("Treasury") regulations promulgated to implement the Act require an individual to file a Report of Foreign Bank and Financial Accounts ("FBAR") with the IRS for each calendar year that individual has more than $10,000 in a foreign bank account. 31 C.F.R. §§ 1010.350(a), 1010.306(c). If an individual fails to file an FBAR, the Act authorizes the IRS to impose a civil penalty of up to $10,000 for each violation. 31 U.S.C. § 5321(a)(5)(B). If an individual "willfully" fails to file an FBAR, the permissible maximum penalty that the statute authorizes increases to the greater of either $100,000 or 50 percent of the value in the account at the time of the violation. Id. § 5321(a)(5)(C)-(D).
Toth is a U.S. citizen who, since 1999, has had a foreign bank account with the Union Bank of Switzerland ("UBS"). Toth was subject to the Act's special reporting requirements for that account for at least the years 2005-2009, as in each of those years the account had at least $10,000 in it.
Toth first filed an FBAR disclosing her Swiss UBS account to the IRS in 2010. The next year, the IRS audited Toth. The audit revealed that Toth had failed to comply with the Act's reporting requirements prior to 2010, and the IRS filed the delinquent FBAR forms on her behalf for the relevant period (2005-2009).1 At the end of the investigation, the IRS concluded that Toth's failure to file an FBAR had been willful for the 2007 calendar year. The IRS assessed a civil penalty against Toth, in consequence of her failure to file the requisite form, of $2,173,703, which, being half the value of her Swiss UBS account at the time of the violation, was the maximum allowable penalty set forth in the Act, see id. § 5321(a)(5)(C)-(D).2
Toth did not pay this penalty. The government then filed a civil suit against Toth in the District of Massachusetts on September 16, 2015, for a judgment imposing the full penalty that the IRS had assessed against her, as well as interest and late fees. Two different process servers attempted unsuccessfully to serve Toth personally. The government completed service by leaving a copy of the complaint at her residence on January 11, 2016, as permitted by Massachusetts Rule of Civil Procedure 4(d)(1) and Federal Rule of Civil Procedure ("Rule") 4(e)(1).3
A couple of weeks later, on February 5, 2016, the government moved for a default judgment against Toth on the ground that she had failed timely to answer the complaint.4 The District Court granted the government's motion and issued a notice of default on February 9, 2016.
Shortly thereafter, Toth began to respond to the government's filings. She opposed the government's motion for default judgment on April 28, 2016, and the following day the District Court held a hearing to discuss Toth's opposition to the government's already granted motion.
At that hearing, the District Court made clear that it was willing to reconsider the default but only if Toth either "g[o]t a lawyer or ... start[ed] showing up in court to defend it." And, when Toth explained that she had not responded to the government's complaint because she "didn't know what it was" and that the law is "a world that ...[she] d[oes]n't know about," the District Court strongly encouraged Toth to hire a lawyer, worked with the government to provide Toth with a non-compulsory list of lawyers she could hire, and granted Toth a 30-day continuance to retain counsel. Following the hearing, Toth moved to set aside the default judgment, but she did not hire a lawyer.
The District Court granted Toth's motion to set aside the default judgment on August 17, 2016. The District Court ruled that "this action should proceed on the merits" due to "the circumstances, which include a pro se plaintiff, a potential judgment of over $2 million and a dispute about service and actual notice of the case."
A little less than two months later, on October 13, 2016, Toth moved to dismiss the complaint under Rules 12(b)(4) and 12(b)(5) for untimely service of process, Rule 12(b)(2) for lack of personal jurisdiction, and Rule 12(b)(6) for failure to state a claim. The District Court denied Toth's motion on all three grounds.
United States v. Toth (Toth I ), No. 15-CV-13367, 2017 WL 1703936, at *1 (D. Mass. May 2, 2017).
Toth filed her answer to the complaint after the District Court denied Toth's motion to dismiss. The case then proceeded to discovery.
At a scheduling conference to set deadlines for discovery, the District Court noted that Toth had failed to confer with the government's counsel as required by Rule 26(f). In response to Toth's expression of confusion as to what initial disclosures were, the District Court once again urged Toth to hire a lawyer.
By January 2018, Toth had missed two deadlines for responding to discovery requests and amending her initial disclosures set by the District Court. By that time, the government also had both moved to compel discovery twice and sought sanctions pursuant to Rule 37. The District Court ordered Toth to comply with the government's discovery requests and, as a sanction for having failed to have done so previously, forbade her from raising any non-privilege-based objections in her responses.
The government then again moved for sanctions against Toth on March 9, 2018, on the ground that, as of February 9th, Toth had failed to respond to the government's discovery requests. The District Court refrained from ruling on the motion until it heard from the parties at a hearing scheduled for March 12th.
At that hearing, Toth provided the government with her amended initial disclosures as well as her responses to the government's discovery requests. The government in July nonetheless moved once more for sanctions against Toth on the ground that her responses were inadequate and noncompliant with the District Court's prior order imposing sanctions.
Toth did not oppose the government's motion, and the District Court ordered Toth to "show cause as to why these sanctions should not be imposed." The District Court noted "the gravity of the proposed sanctions," which included a finding of fact necessary for the government to impose the more than $2 million penalty against Toth -- namely, that Toth had violated the Act's reporting requirements willfully in 2007. See 31 U.S.C. § 5321(a)(5)(C).
Toth then filed four responses on September 10, 2018, September 14, 2018, September 25, 2018, and October 12, 2018. One of the responses disputed the government's characterization of her conduct during discovery. The three other responses disputed that she had willfully violated the Act.
On October 15, 2018, the District Court granted the government's motion for sanctions under Rule 37. United States v. Toth (Toth II), No. 15-CV-13367, 2018 WL 4963172, at *5 (D. Mass. Oct. 15, 2018). The District Court ordered as the sanction that several facts be "taken as established," including that Toth violated the Act willfully. Id. at *5-6. The District Court recognized that the order imposed a "strong sanction[ ]," id. at *5, but explained that it was necessary due to Toth's "severe, repeated, and deliberate" "violations of the [District] Court's discovery orders" that amounted to "a pattern of stonewalling," id. at *4.
Discovery continued, and Toth -- after having then hired a lawyer -- produced documents that she had not previously disclosed. Toth moved to vacate the sanctions order on March 15, 2019. The District Court refused to do so. United States v. Toth (Toth III ), No. 15-CV-13367, 2019 WL 7039627, at *1, *2 (D. Mass. Dec. 20, 2019).
The government moved for summary judgment, which the District Court granted on September 16, 2020. United States v. Toth (Toth IV ), No. 15-CV-13367, 2020 WL 5549111 (D. Mass. Sept. 16, 2020). The District Court in its opinion so ruling reaffirmed its prior determination that Toth's violation of the Act had been willful. Id. at *5-*6 ; see also 31 U.S.C. § 5321(a)(5).
The District Court then turned to the defenses that Toth had raised in response to the motion for summary judgment with respect to the size of the penalty that the IRS sought to impose through the suit. These defenses were based on a Treasury regulation and the U.S. Constitution's Excessive Fines and Due Process Clauses. Id. at *6-9. The District Court rejected each contention, and, having found as a matter of law that Toth had willfully failed to report her Swiss UBS account in 2007 and that the...
To continue reading
Request your trial