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Politte v. United States

August 16, 2010


The opinion of the court was delivered by: Hon. William V. Gallo U.S. Magistrate Judge


Giving rise to this order is Plaintiffs' Forthwith Motion For Emergency Relief, For a Protective Order and For Sanctions to Stop Discovery Abuses. (Doc. No. 243.) The Court denied the motion in its entirety because it had no merit and issued an order demanding Plaintiffs to show cause why sanctions should not issue for the baseless filing. (Doc. No. 247.) Plaintiffs responded and concurrently requested the Court to reconsider its earlier ruling. (Doc. No. 248.) Presently, the Court will exercise restraint and not sanction Plaintiffs despite their unfounded suspicion regarding IRS Revenue Officer Erin Kelly's intentions in issuing the summonses. Because the Court has questioned Plaintiffs' dilatory tactics in the past (doc. no. 199) and again now, future action so poorly founded as the instant motion, will be considered akin to contempt and sanctions will issue from this Court. Accordingly, the Court declines to issue Rule 11 sanctions against Plaintiffs and DENIES Plaintiffs' Motion for Reconsideration.


While Plaintiffs and Defendant have litigated this case, the IRS has maintained an independent tax collection investigation against RJAMP, not a party to this lawsuit.*fn1 In mid-June 2010, the IRS requested RAJMP's account records from Union Bank of California, Bank of the West, and California Bank & Trust via administrative summonses. At 3:58 P.M. Friday July 9, 2010, Plaintiffs filed a motion for emergency protective order*fn2 contesting compliance with the IRS administrative summonses due the following Monday, July 12, 2010. The Court promptly but temporarily stayed all deadlines imposed by the summonses until the resolution of the motion. (Doc. No. 244.) The Government opposed the motion on July 20, 2010, and Plaintiffs replied July 27, 2010.

The Court denied Plaintiffs' motion and ordered Plaintiffs to show cause why sanctions should not be imposed as the motion appeared both frivolous and without merit, legally and factually. (Doc. No. 247.) Plaintiffs filed a response and a concurrent motion for reconsideration.


a.) Order to Show Cause For Sanctions

Rule 11(c)(3) grants the Court authority to sanction attorneys who fail to demonstrate that a motion is adequately supported by law and evidence.*fn3 Fed. R. Civ. Proc. 11(c)(3). Court- issued sua sponte Rule 11 sanctions "will ordinarily be imposed only in situations that are akin to a contempt of court." United Nat. Ins.Co. v. R & D Latex Corp.,242 F.3d 1102, 1116 (9th Cir. 2001) (denying sanctions because although disapproved, the offending actions failed to rise to contempt in purpose or substance); see Perez v. City of Los Angeles, 98 Fed. Appx. 703, 708 (9th Cir. 2004) (denying sanctions for lack of evidence in court record of "litigation tactics so vexatious as to be unjustifiable").

Plaintiffs contend their motion was filed in good faith and that the Court failed to appreciate Officer Kelly's plan for "improperly using the summonses to gather evidence on her own, [and] to bolster her testimony at trial." (Doc. No. 248, 3:19-20.) Plaintiffs further argue that sanctions are not warranted because they "ha[d] a good faith belief that the summoned informa- tion will find its way into RO Kelly's testimony without the Plaintiffs, Department of Justice, or perhaps even RO Kelly's ability to know or prevent it." (Doc. No. 248, 4:4-6.)

Plaintiffs argue that sanctions are not appropriate because case law provides support to their legal argument. Plaintiff relies principally on two cases, neither of which however, can hardly be considered supportive. In Universal Manufacturing, petitioners requested a protective order that would exclude any information obtained pursuant to the summonses from use in any tax court proceedings. Universal Mfg. Co. Inc. v. C.I.R., 93 T.C. 589, 594 (1989). The tax court agreed to do so reasoning that the protective order did "not interfere in any way with respon- dent's summons authority." Id. at 595. Plaintiffs other supporting case, Mary Kay Ash v. C.I.R. significantly narrowed, if not overturned, Universal Manufacturing. The Ash court concluded that it did "not have the authority to issue protective orders under such [r]ule restricting the use of information WHICH WAS NOT OBTAINED THROUGH THE USE OF THE COURT'S DISCOVERY PROCEDURES, but was obtained through other legal procedures." Ash v. C.I.R., 96 T.C. 459, 469-70 (1991) (emphasis in original). The Ash court declined to exercise any restriction over the informa- tion obtained in the summons because the petitioner "failed to show respondent's lack of an independent and sufficient reason for the summonses." Id. at 472.

Universal Manufacturing and Ash provide little, if any, support to Plaintiffs' original motion. Universal Manufacturing is no longer good law as the Ash court found Universal Manufac- turing's protective order to exceed the authority of the tax court. Even if Plaintiffs cited Universal Manufacturing to demonstrate that the Court has power to limit the use of information in its proceedings, the support fails. Here, unlike the Universal Manufacturing respondent, the Government already has conceded that none of information obtained through the administrative summonses by Officer Kelly will be used at trial. Similarly Ash, as persuasive as a tax court case may be, fails to support Plaintiffs' contentions. The Ash court highlighted the burden a party must carry when opposing the issuance of an administrative summons, a standard the Plaintiffs fail even to discuss let alone satisfy.

Plaintiffs' response to the order to show cause fails to address and completely ignores the fact that their underlying motion requested far more than the simple exclusion of evidence obtained pursuant to the summonses. In fact, Plaintiffs originally requested a litany of ever- increasing and improper rulings, including,

"1.) holding RO Kelly in contempt of the Court's Orders;

2) prohibiting production of the documents required ...

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