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Scharringhausen v. United States

March 13, 2008


The opinion of the court was delivered by: Honorable Janis L. Sammartino United States District Judge


Presently before the Court is the United States of America's ("defendant") motion to dismiss for failure to state a claim Robert M. Scharringhausen's ("plaintiff") first cause of action for an unauthorized collection action. (Doc. No. 19.) Because defendant first answered the complaint before filing the motion, the motion was untimely. Nonetheless, the Hon. M. James Lorenz previously ruled that defendant's motion would not be stricken, but instead construed as a motion for judgment on the pleadings. (Doc. No. 23.) For the reasons stated below, the Court GRANTS defendant's motion.

Although the parties agreed to stay discovery pending the Court's ruling on defendant's motion for judgment on the pleadings, defendant has also filed a motion for summary judgment on plaintiff's second cause of action for a violation of the Freedom of Information Act ("FOIA"). For the reasons stated below, the Court DENIES WITHOUT PREJUDICE the motion for summary judgment, pursuant to FRCP 56(f).


A. Factual Background

On March 20, 2003, the United States (the defendant in this action) filed a complaint in this district court against Scharringhausen (the plaintiff in this action) to reduce to judgment outstanding federal tax assessments, including plaintiff's personal income tax liabilities for 1991-92 and trust fund recovery penalties for periods ending December 31, 1990 and September 30, 1991. (Compl. ¶ 1; Am. Answer ¶ 1; see 03cv551, Doc. No. 1 ¶¶ 8, 15, 21, 27.) On November 4, 2003, default judgment was entered against Scharringhausen in the amount of $488,307.96. (Compl. ¶ 2; Am. Answer ¶ 2; see 03cv551, Doc. No. 17.) On April 19, 2004, the United States's motion to compel post-judgment discovery was granted. (Compl. ¶ 4; Am. Answer ¶ 4; see 03cv551, Doc. No. 26.) At the hearing on the discovery motion, Scharringhausen appeared for the first time. (Memo. ISO MJP, at 2-3.) Subsequently, Scharringhausen was ordered to pay $2,092.93 of fees and costs that the United States reasonably incurred in bringing its discovery motion. (Compl. ¶ 4; Answer ¶ 4; see 03cv551, Doc. No. 30.) After tolling the deadline for filing a motion for reconsideration, the court ultimately denied Scharringhausen's motion to set aside the default judgment. (Compl. ¶¶ 8, 10; Am. Answer ¶¶ 8, 10; see 03cv551, Doc. Nos. 67 & 85.) Scharringhausen appealed the Order denying the motion to set aside the default judgment, and the Ninth Circuit affirmed. (Compl. ¶ 12; Memo. ISO MJP, at 3; see 03cv551, Doc. No. 92.)

On October 13, 2005, Scharringhausen's counsel submitted an FOIA request to the IRS Disclosure Office for "all documents relating to the Trust Fund Recovery Penalties for tax period ending December 31, 1990 and September 30, 1991 which were assessed against Mr. Scharringhausen relating to the entities, Scharringhausen, Inc. and Pantera Construction, Inc." (Compl. ¶ 13 & Exhibit 1; Am. Answer ¶ 13.) IRS Disclosure Officer Gary T. Prutsman responded to counsel's FOIA request on November 2, 2005, representing that, within petitioner's 160-page file, four pages were "sanitized" and twenty-three pages withheld pursuant to various FOIA exemptions. (Compl. ¶ 14 & Exhibit 2.) The withheld pages included the Suit Letter that the IRS prepared when it referred the matter to the Department of Justice to institute the civil action to reduce the unpaid assessments to judgment. (Id. Exhibits 1-2.) The IRS response further indicated that Scharringhuasen's 1990 trust fund recovery penalty file was "destroyed per normal records retention policies." (Id. Exhibit 2.)

On December 9, 2005, Scharringhausen appealed the Disclosure Officer's decision on the FOIA request. (Compl. ¶ 15 & Exhibit 3; Am. Answer ¶ 15.) Appeals Team Manager Marge Field responded to the appeal in writing on February 3, 2006, releasing two previously redacted pages in their entirety but otherwise affirming the Disclosure Officer's decision to withhold and redact the remaining pages. (Id. Exhibit 4.) Ms. Field also confirmed that the IRS had no records relevant to Scharringhausen's trust fund recovery penalty file. (Id.) Scharringhausen then filed an administrative claim for damages on March 17, 2006. (Compl. ¶ 18; Am. Answer ¶ 18.) After six months passed with no response from the IRS (Def. Memo. ISO MJP, at 3), Scharringhausen initiated the present action.

B. Procedural Background

On September 29, 2006, plaintiff filed his complaint. (Doc. No. 1.) The first cause of action sought civil damages for an unlawful collection action. (Id. at 4.) Specifically, plaintiff alleged that the IRS authorized the Department of Justice to initiate the 2003 action, even though the IRS knew that it lacked evidentiary support for its trust fund recovery penalties claim. (Id. ¶ 22.) The second cause of action requested production of withheld records pursuant to the FOIA. (Id. at 5.)

Defendant answered the complaint on December 21, 2006 and amended its answer by leave of Court on May 2, 2007. (Doc. Nos. 3 & 18.) Defendant then filed a motion to dismiss the first cause of action pursuant to FRCP 12(b)(6) on June 26, 2007. (Doc. No. 19.) The Hon. M. James Lorenz issued an Order to show cause on June 28, 2007, demanding that defendant show why its motion should not be stricken as untimely. (Doc. No. 20.) After receiving briefs from each side, Judge Lorenz ruled that the motion was untimely but would nonetheless be construed as a motion for judgment pleadings pursuant to FRCP 12(c). (Doc. No. 23.) Plaintiff filed his opposition to the motion on August 16, 2007. (Doc. No. 24.) Defendant replied on August 28, 2007. (Doc. No. 26.) After Judge Lorenz took the motion under submission, and while the motion remained pending, the action was reassigned the Hon. Janis L. Sammartino on October 2, 2007.

On November 15, 2007, defendant moved for summary judgment on the second cause of action. (Doc. No. 32.) Plaintiff filed his opposition on February 29, 2008, requesting that the Court deny or continue the motion to give the plaintiff an opportunity to conduct discovery. (Doc. No. 35.) Defendant filed its reply on March 7, 2008. (Doc. No. 36.)


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