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Interior Glass Systems, Inc. v. United States

United States District Court, N.D. California, San Jose Division

March 28, 2017



          EDWARD J. DAVILA United States District Judge

         Plaintiff Interior Glass Systems, Inc. (“Interior Glass”) brings the instant motion “under Rule 59 to alter the judgment and for new trial” (Dkt. No. 74) after the court entered a judgment partially in its favor within this action for recovery of tax penalties. Defendant United States of America (the “Government”) opposes the request.

         Federal jurisdiction arises pursuant to 28 U.S.C. § 1346. The court has carefully considered the parties' pleadings and the record in conjunction with the arguments made at the hearing on March 23, 2017. Because Interior Glass has not presented a viable basis for post-judgment relief, its motion will be denied for the reasons that follow.

         I. BACKGROUND

         The court does not repeat the extensive factual recitation contained in the summary judgment order (Dkt. No. 70), but mentions some basic background information for context.

         Interior Glass is a glass-installation company located in San Jose, and is owned by Mike Yates. In 2012, the Internal Revenue Service (“IRS”) imposed a $40, 000 penalty on Interior Glass for failing to disclose its participation in two programs involving tax deductions of life insurance premiums: the Insured Security Program (“ISP”) and the group term life insurance plan (“GTLP”) offered by the Association for Small, Closely-Held Business Enterprises. Both of those programs were marketed to Interior Glass by the same individual, Lawrence Cronin.

         Interior Glass participated in the ISP in 2008 and in the GTLP in 2009, 2010 and 2011. The IRS imposed a $10, 000 penalty under 26 U.S.C. § 6707A for each of those tax years because it considered the ISP and the GTLP as “listed transactions” subject to Notice 2007-83. In relevant part, Notice 2007-83 targets “certain trust arrangements claiming to be welfare benefit funds and involving cash value life insurance policies” which were “being promoted to and used by taxpayers to improperly claim federal income and employment tax benefits.” Notice 2007-83 applies to “listed transactions, ” which are defined as “any transaction” having four enumerated elements, or “any transaction that is substantially similar to such a transaction.”

         In May, 2013, Interior Glass paid the $40, 000 penalty and interest of $430.12. It then filed an unsuccessful refund claim with the IRS, and commenced the instant action in December 2013.

         Before this court, Interior Glass and the Government moved for summary judgment or partial summary judgment. Dkt. Nos. 30, 31, 36. The court held an initial hearing on the motions but requested supplemental briefing from both sides. Dkt. Nos. 59, 61. Another motion hearing was subsequently held, after which Interior Glass submitted an additional brief. Dkt. No. 66.

         On August 12, 2016, the court issued a written order (1) granting the Government's first motion for partial summary judgment, (2) granting in part and denying in part the Government's second motion for summary judgment, and (3) granting in part and denying in part Interior Glass' motion for summary judgment. Because the Government withdrew opposition to a refund of the 2008 penalty, summary judgment was granted to Plaintiff on that issue. However, the court determined the Government was entitled summary judgment for the remaining years' penalties based on a finding that the GTLP was “substantially similar” to a “listed transaction” and thereby subject to Notice 2007-83. In accordance with these determinations, a $10, 000 judgment was entered in favor of Interior Glass. Dkt. No. 71.

         The instant motion followed.


         Despite its title as one to alter the judgment as well as one for “new trial, ” Interior Glass' motion can only arise under Federal Rule of Civil Procedure 59(e) because no trial occurred in this action. Merrill v. Cty. of Madera, 389 Fed.Appx. 613, 615 (9th Cir. 2010) (“[A] Rule 59(a) motion for new trial is not available on claims or causes of actions for which Plaintiffs never received a trial.”); United States v. 1982 Sanger 24' Spectra Boat, 738 F.2d 1043, 1046 (9th Cir. 1984) (“[T]he moving party's label for its motion is not controlling . . . . Rather, the court will construe it, however styled, to be the type proper for the relief requested.”). The argument that Rule 59(a)(2) applies under these circumstances is unpersuasive. See Taylor v. Knapp, 871 F.2d 803, 805 (9th Cir. 1989) (holding that “reconsideration of summary judgment is appropriately brought under . . . Rule 59(e)”); see also Huerta v. AT&T Umbrella Ben. Plan No. 1, No. 3:11-cv-01673-JCS, 2012 U.S. Dist. LEXIS 178353, at *6-7, 2012 WL 6569369 (N.D. Cal. Dec. 17, 2012) (“Because the Court never held a trial, but rather granted summary judgment in favor of Defendant, a request for a “new trial” pursuant to Rule 59(a)(2) is procedurally improper.”).

         “In general, there are four basic grounds upon which a Rule 59(e) motion may be granted: (1) if such motion is necessary to correct manifest errors of law or fact upon which the judgment rests; (2) if such motion is necessary to present newly discovered or previously unavailable evidence; (3) if such motion is necessary to prevent manifest injustice; or (4) if the amendment is justified by an ...

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