United States District Court, E.D. California
CAROLINE D. CIRAOLO Principal Deputy Assistant Attorney
General G. PATRICK JENNINGS Trial Attorney, Tax Division U.S.
Department of Justice Of Counsel: PHILLIP A. TALBERT Acting
United States Attorney Eastern District of California.
ORDER GRANTING JUDGMENT BY DEFAULT
MORRISON C. ENGLAND, JR, UNITED STATES DISTRICT JUDGE
United States filed this action to reduce federal tax
liabilities to judgment and to enforce the tax liens against
the home of defendant James O. Molen. In granting several
motions by the United States, the Court entered judgment on
most of the tax liabilities and entered default judgment
against the nominee Black Hole Trust, in which name the Molen
residence is held. The only issue remaining for trial was
whether a refund of payroll tax for the first quarter of
2000, in the amount of $30, 005.29, was requested with
fraudulent intent. If so, the fraud penalty would be upheld
and tax would have been assessed within the statute of
Molen filed an answer to the complaint in this case and has
filed numerous papers, although he continued to deny the
jurisdiction of this Court and attempted to impose his own
procedures and timetables on this proceeding.
Molen is currently serving a sentence of three years, after a
conviction under 26 U.S.C. § 7212(a), Corrupt Endeavor
To Obstruct Or Impede The Due Administration Of Internal
Revenue Laws, and other counts relating to the filing of
false liens to retaliate against IRS Revenue Officers and
violating a court injunction. The failure to pay tax for many
years, the convictions, and the history of this case show
that Mr. Molen defies the tax laws and does not abide by the
rulings of this Court.
November 2, 2016, at 9:00 a.m., trial of the fraud penalty
was set and G. Patrick Jennings, Tax Division, United States
Department of Justice, appeared for the United States. Mr.
Molen was presented by the United States Marshal to represent
himself. Mr. Molen stated a list of conditions to the Court.
The Court denied the requested conditions. Mr. Molen then
indicated that he would refuse to testify to defend himself.
Jennings requested entry of default judgment. The Court
indicated that the motion would be granted and directed Mr.
Jennings to prepare a written order.
of the Federal Rules of Civil Procedure permits entry of
default judgment where the defendant “has failed to
plead or otherwise defend.” A failure or refusal to
appear and participate at trial can constitute a failure to
“otherwise defend.” Ringgold Corp. v.
Worrall, 880 F.2d 1138, 1140, 1142 (9th Cir. 1989)
(relying on court's inherent authority to enter default
judgment for failure to attend pretrial conference and
trial). Entry of a default judgment is appropriate where
"the adversary process has been halted because of an
essentially unresponsive party." H. F. Livermore
Corp. v. Aktiengesellschaft Gebruder Loepfe, 432 F.2d
689, 691 (D.C. Cir. 1970).
entering default judgment, the Court considers the following
factors: (1) the possibility of prejudice to the plaintiff;
(2) the merits of plaintiff's substantive claim; (3) the
sufficiency of the complaint; (4) the sum of money at stake
in the action; (5) the possibility of a dispute concerning
material facts; (6) whether the default was due to excusable
neglect; and (7) the strong policy underlying the Federal
Rules of Civil Procedure favoring decisions on the merits.
Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir.
to the plaintiff is present because whether Mr. Molen had
fraudulent intent is a matter best shown by his own words.
Mr. Molen was listed as a witness for the United States, and
would have been the primary witness for the plaintiff's
case in chief. The United States had lodged 22 exhibits to
show fraud by Mr. Molen, 15 of which were signed by Mr.
Molen. Exhibit 7 is a letter signed by Mr. Molen in which he
instructs his employees “DO NOT report any of your
actual income from the Company when filing your tax
returns.” (emphasis in original). It is difficult to
imagine a better example of fraud. If Mr. Molen chooses not
to defend the fraud allegation, the United States cannot
cross examine him or attack his credibility. Without
testimony, the Court has no basis to judge Mr. Molen's
Court draws an adverse inference from Mr. Molen's silence
and from his convictions, and deems that his testimony would
have been unfavorable to him. Baxter v. Palmigiano,
425 U.S. 308 (1976). This adverse inference also supports the
United States' request for default judgment.
the merits of the claim, the complaint of the United States,
at paragraph 23, stated:
The fraud penalty was assessed because James O. Molen made a
refund request for the IRS Form 941 federal employment taxes
for the first quarter of the taxable year 2000 and received a
refund in excess of the amount deposited. James O. Molen knew
that the refund request had no merit in fact or law.
default, the well-pleaded allegations of the complaint
relating to liability are taken as true (but not allegations
as to the amount of damages). TeleVideo Systems, Inc. v.
Heidenthal, 826 F.2d 915, 917-18 (9th Cir. 1987). The
complaint alleges a knowingly false claim for refund and so
states a valid claim for fraud. The numerical calculations of
the tax amounts were resolved ...