OID TP Gets Contemptuous Over Federal Register

[The Observer]

UNITED STATES OF AMERICA,
Petitioner,
v.
NOEL S. CUNNINGHAM,
Respondent.

Release Date: JANUARY 03, 2011

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF CALIFORNIA

ORDER FINDING RESPONDENT IN CONTEMPT; STAYING SANCTION

Currently before the Court is the government's motion for civil contempt sanctions based upon Respondent Noel S. Cunningham's failure to comply with the Court's September 15, 2010, order enforcing IRS summons. Mr. Cunningham has filed an opposition to the contempt motion, and the government has filed a reply. A hearing was held before Chief Judge Irma E. Gonzalez on January 3, 2011. Assistant United States Attorney Caroline Clark appeared on behalf of the government. Mr. Cunningham appeared on his own behalf. For the reasons explained herein, the Court grants the government's motion and finds Mr. Cunningham in contempt of court.

BACKGROUND

IRS Revenue Officer John Black is conducting an investigation regarding Mr. Cunningham's participation in a Form 1099 Original Issue Document ("OID") scheme that resulted in an erroneous refund paid to Mr. Cunningham in 2008. Revenue Officer Black is also investigating Mr. Cunningham's ability to pay the income tax liability assessed against him for the year 2008. [Declaration of Revenue Officer John Black ("Black Decl."), paragraph 2.] In furtherance of the investigation, Revenue Officer Black issued a Collection Summons on February 19, 2010. [Id., paragraph 3, Exh. A.] Revenue Officer Black personally served the Collection Summons upon Mr. Cunningham on February 22, 2010. [Id., paragraph 4, Exh. B.] The Collection Summons required Mr. Cunningham to appear in person on March 11, 2010.

On March 10, 2010, Mr. Cunningham appeared before Revenue Officer Black. [Id., paragraph 5.] In order to accommodate Mr. Cunningham's request to audio record the appearance, Revenue Officer Black rescheduled the appearance for March 30, 2010 at 9:00 a.m. On March 29, 2010, Mr. Cunningham by letter requested a certified copy of Revenue Officer Black's commission and identification, and also requested to bring two unidentified witnesses to the meeting. [Id.] Mr. Cunningham appeared before Revenue Officer Black on March 30, 2010, but did not provide any of the summoned documents. [Id.]

The IRS gave Mr. Cunningham another opportunity to appear, on April 29, 2010. Mr. Cunningham again appeared on this date, but refused to provide any documents until Revenue Officer Black provided the statutory authority requiring compliance. [Id., paragraph 7.]

By order filed September 15, 2010, the Court rejected Mr. Cunningham's argument that the IRS lacks authority to issue the summons because it has not published its own enforcement authority regulations in the Federal Register. The Court granted the IRS petition to enforce the summons, and ordered Mr. Cunningham to appear before Revenue Officer Black or his designee on October 7, 2010, to produce documents and give testimony as requested by the summons.

On October 1, 2010, Mr. Cunningham directed a letter to Revenue Officer Black, indicating he would not participate in the interview until certain documentation was provided to him. [Declaration of Revenue Officer John Black in Support of Motion for Contempt Sanctions ("Black Contempt Decl."), paragraph 5 and Exhibit A.] Mr. Cunningham did appear before Revenue Officer Black on October 7, 2010, along with a male witness who refused to identify himself. [Id., paragraph 6.] Mr. Cunningham refused to participate in the interview and instead began reading the October 1, 2010 letter. Revenue Officer Black then terminated the meeting after Mr. Cunningham said he would not comply with the summons. [Id.] Mr. Cunningham has not provided any testimony or records for inspection pursuant to the IRS summons and the Court's September 15, 2010 order.

On October 7, 2010, Mr. Cunningham filed objections to the Court's order. The Court construed Mr. Cunningham's objections as a motion for relief from judgment under Rule 60(b), and by order filed October 12, 2010, denied the motion. Mr. Cunningham filed a notice of appeal on November 12, 2010, and his opening brief is due to be filed in the Court of Appeal by February 22, 2011. Mr. Cunningham did not request that this Court stay enforcement of the order pending appeal pursuant to Fed. R. App. P. 8(a). Mr. Cunningham filed a motion for stay in the Court of Appeals, which denied the motion by order filed December 29, 2010.

LEGAL STANDARD

Before the Court can find Mr. Cunningham in contempt, the government must demonstrate:

"(1) that [Mr. Cunningham] violated the court order,
(2) beyond substantial compliance, (3) not based
on a good faith and reasonable interpretation of
the order, (4) by clear and convincing evidence."

United States v. Bright, 596 F.3d 683, 694 (9 Cir. 2010) (quoting Labor/Cmty. Strategy Ctr. v. Los Angeles Co. Metro. Transp. Auth., 564 F.3d 1115, 1123 (9 Cir. 2009)). If the government establishes a prima facie case of contempt, Mr. Cunningham may avoid sanctions "by demonstrating a present inability to comply with the enforcement order." Id. at 696 (citing United States v. Drollinger, 80 F.3d 389, 393 (9 Cir. 1996).

The fact Mr. Cunningham has filed an appeal does not preclude this Court from finding him in contempt. "Absent a stay, all orders and judgments of courts must be complied with promptly." In re Crystal Palace Gambling Hall, Inc., 817 F.2d 1361, 1364 (9 Cir. 1987). "If a person to whom a court directs an order believes that order is incorrect the remedy is to appeal, but, absent a stay, he must comply promptly with the order pending appeal." Maness v. Meyers, 419 U.S. 449, 458 (1975).

The purpose of civil contempt is coercive or compensatory. Koninklijke Philips Electronics N.V. v. KXD Technology, Inc., 539 F.3d 1039, 1042 (9 Cir. 2008). Courts have the power to impose a conditional period of imprisonment for the purpose of coercing an individual to obey its validly entered order. Uphaus v. Wyman, 360 U.S. 72, 81 (1959). Courts may also impose a monetary sanction either for purposes of coercing compliance or to compensate the moving party for its costs in attaining the contempt finding. General Signal Corp. v. Donallco, Inc., 787 F.2d 1376, 1380 (9 Cir. 1986).

DISCUSSION

The Court's September 15, 2010 order was clear and definite. It required Mr. Cunningham to appear before Revenue Officer Black on October 7, 2010 at 9:00 a.m. to produce documents and give testimony as directed in the summons. Mr. Cunningham appeared before the Revenue Officer, but did not give testimony or produce records as set forth in the summons. Mr. Cunningham refused to comply with the summons, asserting once again that the IRS lacks authority to issue the summons because the enforcement regulation authority is not published within the Federal Register.

In its September 15, 2010 order, the Court rejected Mr. Cunningham's argument and found that the IRS has the power to administer the law by issuing administrative summonses. Mr. Cunningham has appealed the Court's order, but the order has not been stayed pending appeal. Following the September 13, 2010 hearing on the government's petition to enforce IRS summons, AUSA Caroline Clark provided Mr. Cunningham with a copy of Treasury Order 150-10, dated April 22, 1982, by which the Secretary of the Treasury delegated to the Commissioner of Internal Revenue responsibility for the administration and enforcement of the Internal Revenue laws. [Declaration of Caroline Clark, paragraph 2, Exhibit B.] Thus, the government has provided Mr. Cunningham with the authority he requests and there is no basis for Mr. Cunningham's continued refusal to comply with the Court's order.

In his opposition to the government's contempt motion, Mr. Cunningham also states in a conclusory manner that he "is not in possession of said information, and therefore incapable of producing such." [Answer to Notice of Motion and Motion for Contempt, p. 6, paragraph 3; p. 10, paragraphs 8 and 10.] The order of enforcement "necessarily contained an implied finding that no defense of lack of possession or control had been raised and sustained in that proceeding." United States v. Rylander, 460 U.S. 752, 760-61 (1983). Mr. Cunningham bears the burden of demonstrating, in this contempt proceeding, that he has a present inability to comply with the order. United States v. Drollinger, 80 F.3d 389, 393 (9 Cir. 1996). The summons seeks the ordinary documents relevant to establishing whether a taxpayer is able to pay an assessed tax liability: bank statements, checkbooks, canceled checks, saving account passbooks, records or certificate of deposit, and other similar documents for accounts held in Mr. Cunningham's name or for his benefit. [Black Decl., Doc. 2, Exhibit A.] In his initial answer to the petition to enforce IRS summons, Mr. Cunningham asserted he was not in possession of the summoned material because he "was not and is not engaged in federally regulated activities, commodities or events applicable to the issuing agency's statutes and their regulations." [Answer, Doc. No. 5, pp. 10, 11, 12.] Thus, Mr. Cunningham's objection was based not upon lack of physical custody and control of the books and records. Mr. Cunningham has not demonstrated he currently lacks the ability to comply with the Court's order.

CONCLUSION

For the reasons set forth herein, the Court finds Respondent Noel S. Cunningham in contempt of court for failing to comply with the September 15, 2010 order enforcing IRS summons. At the January 3, 2011 hearing, AUSA Caroline Clark represented that Revenue Officer Black could meet with Mr. Cunningham on Thursday, January 20, 2011, to receive Mr. Cunningham's production of documents and to obtain testimony as called for by the IRS summons. Therefore, the Court stays any sanctions flowing from the finding of contempt until Monday, January 24, 2011, to allow Mr. Cunningham an opportunity to comply with the Court's order. Upon receiving notice from counsel for the government that Mr. Cunningham has complied, the Court will discharge the finding of contempt. If Mr. Cunningham fails to appear before Revenue Officer Black on January 20, 2011, the Court will issue a warrant for his arrest and incarceration until such time as he purges himself of the contempt.

IT IS SO ORDERED.

DATED: January 3, 2011.

Irma E. Gonzalez, Chief Judge
United States District Court

[Quixote]

At the January 3, 2011 hearing, AUSA Caroline Clark represented that Revenue Officer Black could meet with Mr. Cunningham on Thursday, January 20, 2011, to receive Mr. Cunningham's production of documents and to obtain testimony as called for by the IRS summons.

At which point Cunningham will reveal whether he is a moron or a deadbeat.

[The Observer]

Or most likely, both.

[Famspear]

From the Court opinion:

............By order filed September 15, 2010, the Court rejected Mr. Cunningham's argument that the IRS lacks authority to issue the summons because it has not published its own enforcement authority regulations in the Federal Register.......

I don't recall whether the Treasury Delegation Order cited in the Court's decision would have been required to be published as a regulation in the Federal Register, but even if the dimwit had been correct in his implication that a published regulation was somehow required, he would have been (and may well have been) defeated by this published Treasury regulation:

(a) In general. For the purpose of ascertaining the correctness of any return, making a return where none has been made, determining the liability of any person for any internal revenue tax (including any interest, additional amount, addition to the tax, or civil penalty) or the liability at law or in equity of any transferee or fiduciary of any person in respect of any internal revenue tax, collecting any such liability or inquiring into any offense connected with the administration or enforcement of the internal revenue laws, any authorized officer or employee of the Internal Revenue Service may examine any books, papers, records or other data which may be relevant or material to such inquiry; and take such testimony of the person concerned, under oath, as may be relevant to such inquiry.

(b) Summons—(1) In general. For the purposes described in § 301.7602–1(a), the Commissioner is authorized to summon the person liable for tax or required to perform the act, or any officer or employee of such person or any person having possession, custody, or care of books of accounts containing entries relating to the business of the person liable for tax or required to perform the act, or any other person deemed proper [ . . . . ] This summons power may be used in an investigation of either civil or criminal tax-related liability.....

--from 26 C.F.R. section 301.7602-1.

[fortinbras]

The bit about delegation of authority being in the Federal Register was already dealt with in Lonsdale v. US (10th Cir 1990) 919 F2d 1440.

[Gregg]

If Mr. Cunningham fails to appear before Revenue Officer Black on January 20, 2011, the Court will issue a warrant for his arrest and incarceration until such time as he purges himself of the contempt.

What's the over/under on numbnuts showing up but refusing to answer any questions, then arguing that the court order only demanded he be there, not do anything else.

[fortinbras]

From my compilation:

Defendant in tax case at first refused to comply with a court order to answer questions at a deposition unless the govt first agreed to grant him witness immunity prior to his deposition, that he could ask the govt a question for every question put to him, and that he could bring bystanders who might be armed, all of these "conditions" rejected by the court; US v. C.M. Hansen (SD Cal 10/28/05) 233 FRD 665, 97 AFTR2d 785, 64 Fed.R.Serv.3d 47; when ordered by the judge to appear at the deposition, he refused to speak and insisted that all his answers would be written, and also demanded that the govt lawyer agree to substitute himself as the defendant in the case if he used as evidence any of the Defendant’s (presumably copyrighted) publications. Ordered again to cooperate, the Defendant simply refused to answer virtually every question (including such basic ones as his home address) – only occasionally citing the Fifth Amendment but mostly claiming that he was sworn to secrecy by some contract. After reciting this misbehavior the judge granted all of the govt’s motions. US v. C.M. Hansen (SD Cal 12/13/06) 99 AFTR2d 742 – in the same case this sort of misbehavior justified excluding the evidence submitted by the Defendant and deciding disputed issues against him. US v. C.M. Hansen (9th Cir 5/6/08) 277 Fed.Appx 692, 101 AFTR2d 2105. In Gordon v. Idaho (9th Cir 1985) 778 F2d 1397, 3 Fed.R.Serv.3d 1077, 19 Fed.R.Evid.Serv 1076, the plaintiff refused to make an oath or affirmation at his deposition, the court finally decided that, although the trial court could not script the exact words for it, Federal Rule of Evidence 603 did require him to make some sort of oath or affirmation to tell the truth and, whatever words he used for that, he would still be fully liable to the penalties for perjury for his answers; the next year the same person was refusing to make an oath or affirmation when called as a witness in a state court. State v. Spulak (Mo.App 1986) 720 SW2d 396.

[grixit]

I think oaths/affirmations should be abolished. It should be enough for the judge to inform all participants that they are required to tell the whole truth under penalty of perjury. Yea, including the lawyers.

[LPC]

I think oaths/affirmations should be abolished. It should be enough for the judge to inform all participants that they are required to tell the whole truth under penalty of perjury. Yea, including the lawyers.

Two qualifications/contractions:

1. It is the witnesses that must affirm that they will tell the truth. It is not enough for the court to tell them that they must tell the truth. In order to punish someone for perjury, I think that the person should both promise to tell the truth and be shown to have not told the truth. Merely showing that the person was told that they were expected to tell the truth, and then did not tell the truth, is not enough.

2. Lawyers do not testify, so the same considerations do not apply. A lawyer should be able to argue on behalf of a client for an interpretation of evidence without the lawyer believing that the interpretation is "true." "Truth" is for the trier of fact to determine. The lawyer is the advocate for the client, and should be able to argue on behalf of the client without regard to what the lawyer believes is "true."

[notorial dissent]

What's the over/under on numbnuts showing up but refusing to answer any questions, then arguing that the court order only demanded he be there, not do anything else.

Based on previous behavior I am betting on no show or non compliance. Why break a good trend when you've got one going. Stupid is as stupid does, and this one seems to have it in abundance.

[notorial dissent]

LPC, with regards to witnesses and affirmations. I see your point, as the law is currently written, BUT, that is not to say that the law cannot / should not be rewritten to the effect that if you get up in court and give false testimony, or submit a writing that is false that you should not be prosecuted for it as perjury. I suspect that particularly in court cases it would be procedure that the court would inform the witness that they are required/expected to tell the truth, and that if they don’t they will be prosecuted, but my feeling is that should be sufficient.