Williams Dev. & Constr., Inc. v. United States, 4:18-CV-4033-LLP
| Decision Date | 08 October 2020 |
| Docket Number | 4:18-CV-4033-LLP |
| Court | U.S. District Court — District of South Dakota |
| Parties | WILLIAMS DEVELOPMENT & CONSTRUCTION, INC.; CRAIG WILLIAMS; LEE WILLIAMS; WDC COMMERCIAL REAL ESTATE, INC.; WILLIAMS WORKING CAPITAL PARTNERSHIP; WILLIAMS MANAGEMENT TRUST; CRAIG & LEE WILLIAMS FAMILY PARTNERSHIP; LEE AND CRAIG PARTNERSHIP 100 LTD; LEE AND CRAIG PARTNERSHIP 200 LTD; LEE AND CRAIG PARTNERSHIP 300 LTD, Plaintiffs, v. UNITED STATES OF AMERICA, Defendant. |
Pending before the Court is Defendant, United States of America's ("Defendant"), Motion for Summary Judgment, Doc. 50, and a Motion to Withdraw Admission filed by WDC Commercial Real Estate, Inc., Doc. 57. The Court grants the Motion to Withdraw Admission and grants in part and denies in part Defendant's Motion for Summary Judgment.
BACKGROUND
In 2017, the Internal Revenue Service ("IRS") began a criminal investigation of Craig Williams to determine whether he committed violation of the Internal Revenue Code. Doc. 53, ¶ 3. The focus of the investigation was to determine whether Craig Williams had unreported income and had overstated business expenses, resulting in the underpayment of personal income taxes. Doc. 53, ¶ 4; 62 ¶ 7. The special agent in charge of the investigation was Special Agent Cory L'Heureux. Doc. 55, ¶ 5.
Pursuant to this investigation, the IRS served fifteen administrative summonses upon third parties compelling the production of records in order to corroborate income and expenses reported on the tax returns. Doc. 53, ¶ 6. The summonses were issued between February 21, 2018, and March 9, 2018. Doc. 53, ¶¶ 9-23.
The following summons recipients are "third-party recordkeepers" within the meaning of 26 U.S.C. § 7603(b): a) Middleton Raines & Zapata, LLP; (b) Allegiance Bank; (c) Alliance Bernstein, LP; (d) American Express; (e) Morgan Stanley Smith Barney, LLC; (f) Bank of America, NA; (g) Citibank NA; (h) Comerica Bank; (i) JP Morgan Chase Bank, NA; Chase Bank USA NA; JP Morgan Securities LLC; and (j) Wells Fargo Bank NA. Doc. 53, ¶45. The following summons recipients are not third-party recordkeepers within the meaning of section 7603(b): (a) Lochinvar Golf Club; (b) The Clubs at Houston Oaks; (c) J. Pacetti Jewelers; and (d) Zadok Jewelers; and (e) Pure Insurance - Insgroup, Inc.
The first line of the each of the summonses, in what is referred to as the "Statement of Liability," states that the summons is issued "In the Matter of Craig A. or Craig Arthur Williams.". Doc. 53, ¶ 26-30. Thirteen (13) of the fifteen (15) summonses also identify Craig Williams in the Statement of Liability by listing his home address. Docs. 55-1-55-15. Each of the summonses were labeled as issuing from the Criminal Investigation Division of the IRS. Doc. 53, ¶ 30. In attachments to the summonses, Agent L'Heureux identified the names and tax identification numbers of the persons and entities whose records were the subject of the summons. Docs. 55-1-55-15. The names and tax identification numbers listed on attachments to the summonses were those belonging to Craig Williams, his wife Lee Williams, and eight of Williams's businesses—all named Plaintiffs in this matter. Docs. 55-1-55-15. In 50 instances, summons recipients were already in possession of tax identification numbers prior to service. Docs. 53, ¶¶ 47-75; 59-1.
In March 2018, Plaintiffs filed a Complaint in this matter and filed an Amended Complaint on April 27, 2018. Docs. 1, 15. In their Amended Complaint, Plaintiffs allege that Defendant is liable for damages under section 7431 of the Internal Revenue Code, 26 U.S.C. § 7431, for serving summonses upon various third parties in connection with its criminal investigation of Craig Williams which disclosed, without Plaintiffs' authorization, Plaintiffs' tax identification numbersand the fact that Plaintiffs were under a criminal tax investigation—all in violation of 26 U.S.C. § 6103.
On July 23, 2018, Defendant filed a Motion to Dismiss which this Court denied. Docs. 24, 34. On March 23, 2020, Defendant filed a Motion for Summary Judgment which is currently pending with the Court. Therein, Defendant contends that the disclosures of return information did not violate section 6103 because they were permitted under 6103(k)(6) of the Internal Revenue Code in what is known as the "investigatory purposes exception." In the event that the disclosures violate section 6103, Defendant argues on summary judgment that it is not liable under the good faith exception to liability provided under 26 U.S.C. § 7431(b)(1). Also pending before the Court is a Motion to Withdraw Admission by Plaintiff WDC Commercial Real Estate, Inc. Doc. 57.
On August 10, 2020, this Court heard oral argument from the parties on the Motion for Summary Judgment. Doc. 67. During oral argument, Defendant stated that it did not oppose the Motion to Withdraw Admission that had been filed by plaintiff WDC Commercial Real Estate, Inc. Plaintiffs also affirmed during the hearing that they were seeking to recover statutory damages of $1,000 per unauthorized disclosure under section 7431(c). At the hearing, the Court ordered the parties to file supplemental briefs on the good faith exception, 26 U.S.C. § 7431(b)(1).
The Motion for Summary Judgment has been fully briefed and supplemental briefs were filed by the parties per order of the Court. The Motion for Summary Judgment is now ready to be ruled on by the Court.
STANDARD OF REVIEW
Summary judgment is appropriate if 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." Fed. R. Civ. P. 56(a). To meet this burden, the moving party must identify those portions of the record which demonstrate the absence of a genuine issue of material fact, or must show that the nonmoving party has failed to present evidence to support an element of the nonmovant's case on which it bears the ultimate burden of proof. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986).
Once the moving party has met this burden, "[t]he nonmoving party may not 'rest on mere allegations or denials, but must demonstrate on the record the existence of specific facts whichcreate a genuine issue for trial.'" Mosley v. City of Northwoods, Mo., 415 F.3d 908, 910 (8th Cir.2005) (quoting Krenik v. Cty. of Le Sueur, 47 F.3d 953, 957 (8th Cir. 1995)). Id. at 910-11 (quoting Get Away Club, Inc. v. Coleman, 969 F.2d 664, 666 (8th Cir. 1992)).
In ruling on a motion for summary judgment, the facts, and inferences drawn from those facts, are "viewed in the light most favorable to the party opposing the motion" for summary judgment. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (citation omitted). When the evidence cited in support of, or in opposition to, a motion for summary judgment takes the form of an affidavit or declaration, that affidavit or declaration must (a) be made based on the personal knowledge of the affiant or declarant, (b) set out facts that would be admissible in evidence, and (c) demonstrate that the affiant or declarant is competent to testify regarding those facts. Fed. R. Civ. P. 56(c)(4).
DISCUSSION
Section 7431 of Internal Revenue Code provides that a taxpayer may bring a civil action for damages against the United States in a district court of the United States "[i]f any officer or employee of the United States knowingly, or by reason of negligence, inspects or discloses any return or return information with respect to a taxpayer in violation of any provision of [26 U.S.C. § 6103] . . . ." 26 U.S.C. § 7431. Section 6103 of the Internal Revenue Code provides, in part, that:
26 U.S.C. § 6103(a). The term "return information" is defined in the statute to include, among other things, "a taxpayer's identity" and "whether the taxpayer's return was, is being, or will be examined or subject to other investigation or processing." 26 U.S.C. § 6103(b)(2)(A). "Taxpayeridentity" is defined as "the name of a person with respect to whom a return is filed, his mailing address, his taxpayer identifying number (as described in section 6109), or a combination thereof." 26 U.S.C. § 6103(b)(6).
In order to recover under § 7431 for violations of § 6103, a taxpayer must prove that: (1) the disclosure was unauthorized; (2) the disclosure was made "knowingly or by reason of negligence"; and (3) the disclosure violated § 6103. 26 U.S.C. § 7431; see Jones v. United States, 97 F.3d 1121, 1124 (8th Cir. 1996). At issue on summary judgment is whether the disclosures of Plaintiffs' return information on the face of administrative summonses, and in attachments thereto, fall within the "investigatory purposes exception" to unauthorized disclosures as codified in 26 US.C. § 6103(k)(6) of the Internal Revenue Code.
The investigatory purposes exception authorizes IRS employees to "disclose return information" in connection with their official duties relating to a criminal tax investigation "to the extent that such disclosure is necessary in obtaining information, which is not otherwise reasonably available." 26 U.S.C. § 6103(k)(6). Section 6103(k)(6) further provides that "[s]uch disclosures shall be made only in such situations and under such conditions as the Secretary [of the Treasury] may...
To continue reading
Request your trial