US v. Hodgekins

• Decision Date: 24 March 1993
• Docket Number: No. S91-530M.,S91-530M.
• Citation: 832 F. Supp. 1255
• Parties: UNITED STATES of America, Plaintiff, v. Barry J. HODGEKINS, Defendant.
• Court: U.S. District Court — Northern District of Indiana

832 F. Supp. 1255

UNITED STATES of America, Plaintiff, v. Barry J. HODGEKINS, Defendant.

No. S91-530M.

United States District Court, N.D. Indiana, South Bend Division.

March 24, 1993.

COPYRIGHT MATERIAL OMITTED

Douglas Snoeyenbos, Peter Sklarew, Tax Div., U.S. Dept. of Justice, Washington, DC, for plaintiff.

Stephen A. Seall, Gerald F. Lutkus, South Bend, IN, for defendant.

MEMORANDUM AND ORDER

MILLER, District Judge.

This cause comes before the court on the government's motion to vacate the judgment, the defendant's motion for attorney fees, and the defendant's motion to strike footnote one of the government's reply memorandum. The court assumes familiarity with the facts, see United States v. Hodgekins, 805 F.Supp. 653 (N.D.Ind.1992), and addresses each motion in turn.

I.

On August 11, 1992, the court granted defendant Barry Hodgekins' summary judgment motion. United States v. Hodgekins, 805 F.Supp. 653. Pursuant to Rule 60(b)(2) of the Federal Rules of Civil Procedure, the government moves to vacate that judgment in light of newly discovered evidence. A judgment will be vacated on the basis of newly discovered evidence where (1) the evidence was in existence at the time of the summary judgment motion, (2) the failure to produce the evidence was not caused by the movant's lack of due diligence, and (3) the evidence is likely to change the outcome. West v. Love, 776 F.2d 170, 176 (7th Cir. 1985); Peacock v. Board of School Commissioners of Indianapolis, 721 F.2d 210, 213-14 (7th Cir.1983); United States v. Walus, 616 F.2d 283, 287-88 (7th Cir.1980).

The government contends that newly discovered evidence — Mr. Hodgekins' counsels' billing entries — establishes that (1) Mr. Hodgekins deliberately delayed filing his summary judgment motion with the intention of assuring that once his interpretation of Form 2751 was disclosed, it would be too late for the government to respond; (2) Mr. Hodgekins expected that his "carefully drafted answer" would not undermine his strategy of delay; and (3) Mr. Hodgekins' counsel did not originally view Form 2751 as an affirmative defense until they performed legal research. Based upon this newly discovered evidence, the government argues that Mr. Hodgekins should have been estopped from raising the statute of limitations as an affirmative defense, or that he should have been deemed to have waived the defense. The government's motion must be denied because the government has not demonstrated that the newly discovered evidence will likely produce a different result.

A.

For its estoppel argument to succeed, the government must show that (1) there was a false representation or wrongful silence, (2) any error originated in a statement of fact, not law, (3) it was ignorant of the true facts, and (4) it was adversely affected by Mr. Hodgekins' statements or acts. Combs v. United States, 790 F.Supp. 850, 852 (S.D.Ind. 1992).

There was no false representation or wrongful silence by Mr. Hodgekins. At all times, Mr. Hodgekins informed the government that he intended to rely on the statute of limitations as an affirmative defense. He included the defense in his answer and in the parties' joint status report (prepared in the government's office). Mr. Hodgekins' counsel recalls a conversation with the government's counsel in which it was noted that Mr. Hodgekins was serious about asserting the limitations defense. United States v. Hodgekins, 805 F.Supp. at 659. Although the government's counsel recalls no such conversation, Mr. Hodgekins' counsel sent the government a letter noting the conditional waiver. Id. Thus, even if Mr. Hodgekins' "carefully drafted" answer was not sufficient to apprise the government of the statute of limitations as a potential defense, there were at least two other occasions in which Mr. Hodgekins informed the government that he intended to assert such a defense.

The government also argues that a party cannot stand silent while the other party fails to perform a condition of their agreement, citing Barton v. Chemical Bank, 577 F.2d 1329, 1337 (5th Cir.1978). Mr. Hodgekins did not stand silent; he informed the government four times that it was breaching the terms of their agreement. The import of the government's position is that Mr. Hodgekins must provide the government with the fruits of his legal research, a proposition for which the government cites no authority.

Moreover, any error originated in the parties' interpretation of the law, not the facts. The government argues that Mr. Hodgekins initially viewed Form 2751 as a settlement until, "as a result of legal research", he determined that the form also could provide a defense. Therefore, the government contends, Mr. Hodgekins should be estopped "because his counsel knew that making the connection between the Form 2751 and the `statute of limitations' defense would not be immediately apparent even to experienced tax attorneys."

Presumably, the government had similar resources and ability to perform legal research. Instead of performing such research, the government assumed that Mr. Hodgekins' statute of limitations defense was meritless. For example, the government states that most taxpayers' attorneys include a statute of limitations defense in suits similar to this one, but a quick review of the file reveals that the government can safely ignore the defense. The government reviewed Mr. Hodgekins' answer and affirmative defenses, and considered his statute of limitations defense to be without merit. At bottom, the government is arguing that Mr. Hodgekins failed to alert the government of his interpretation of Form 2751, and therefore Mr. Hodgekins should be estopped from raising such a defense. The government has cited no authority for the proposition that one party must inform the other that his affirmative defense truly has merit, cf. Fed. R.Civ.P. 11, or inform the other party of the legal basis for his defense. Mr. Hodgekins did not misrepresent any fact to the government.

To succeed, the government also must show that it was ignorant of the true facts. The government had knowledge of all relevant facts. All the documents that formed the basis of Mr. Hodgekins' defense — Form 2750, Form 2751, and an accompanying cover letter from the IRS — were drafted by the government, and were in the government's possession. Thus, the factual basis for Mr. Hodgekins' claim was equally before both parties.

Nor was the government adversely affected by Mr. Hodgekins' statements or acts. The government had the same documents as Mr. Hodgekins, and reviewed Mr. Hodgekins' answer and affirmative defenses. The government concluded that Mr. Hodgekins' statute of limitations defense had no merit. Mr. Hodgekins did not say or do anything that required the government to arrive at this conclusion. The government has not demonstrated, even with its newly discovered evidence, that Mr. Hodgekins should have been estopped from asserting the statute of limitations as an affirmative defense.

B.

The government also contends that Mr. Hodgekins' reasons for failing to join the government in a motion to consolidate his case with Barnhill v. United States v. Security Pacific Credit, Inc., Cause No. S89-286, 1992 WL 453880 (N.D.Ind.), were pretextual. Thus, the government argues that Mr. Hodgekins should be deemed to have waived his right to be joined in the Barnhill case, and also to have waived his right to raise the statute of limitations as an affirmative defense. The universally accepted definition of waiver is a voluntary and intentional relinquishment of a known right. Vershaw v. Northwestern Nat'l Life Ins. Co., 979 F.2d 557, 560 (7th Cir.1992); Heller Int'l Corp. v. Sharp, 974 F.2d 850, 861-62 (7th Cir.1992). The government has not presented any new evidence establishing that Mr. Hodgekins voluntarily or intentionally relinquished his right to assert the statute of limitations as an affirmative defense.

As stated previously, "although Mr. Hodgekins refused to consolidate this case with Barnhill, he was asked to do so long after the deadline for amendments in Barnhill." 805 F.Supp. at 659. Moreover, nothing prevented the government from filing a motion to consolidate the cases without Mr. Hodgekins joining the government in the motion. Mr. Hodgekins' failure to join the government's motion to consolidate his case with the Barnhill case did not result in Mr. Hodgekins waiving the statute of limitations as an affirmative defense.

Accordingly, the government's motion to vacate the judgment must be denied.

II.

Mr. Hodgekins seeks $29,475.00 in attorney fees and costs pursuant to 26 U.S.C. § 7430. A taxpayer is eligible for an award of reasonable attorney fees and costs under § 7430 where the taxpayer is the prevailing party and has exhausted his administrative remedies. Kenagy v. United States, 942 F.2d 459, 463 (8th Cir.1991). The requirement that Mr. Hodgekins exhaust his administrative remedies does not apply; the government commenced this litigation. Therefore, the sole question becomes whether Mr. Hodgekins is a prevailing party as defined in 26 U.S.C. § 7430(c)(4).

A prevailing party is one that (1) proves that the position taken by the government was not substantially justified; (2) substantially prevails as to the amount or most significant issue in controversy; and (3) meets certain financial requirements listed in 28 U.S.C. § 2412(d)(2)(B). 26 U.S.C. § 7430(c)(4); Kenagy v. United States, 942 F.2d at 463; Howard v. United States, 779 F.Supp. 429, 431 (S.D.Ind.1991). The government concedes that Mr. Hodgekins has prevailed as to the most significant issue in controversy, and Mr. Hodgekins has filed an affidavit establishing that he meets the financial requirements listed in 28 U.S.C. § 2412(d)(2)(B).

Thus, the remaining issue is whether the government's position was substantially justified. The government's position is substantially justified if a "reasonable person could think it correct, that is, if...