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United States v. Martin

United States District Court, D. Maryland, Southern Division

December 5, 2019

UNITED STATES OF AMERICA, Plaintiff,
v.
ULYSSES S. MARTIN, JR., DDS, PC, et al., Defendants.

          MEMORANDUM OPINION

          GEORGE J. HAZEL United States District Judge.

         Plaintiff United States of America (the “Government”) brought this action to enjoin Defendants Ulysses S. Martin, Jr., DDS, PC and Ulysses S. Martin, Jr. (collectively “Defendants”) from continuing to operate a business without paying the associated federal employment and unemployment taxes on employees' wages and from further violating and interfering with the administration of the internal revenue laws. ECF No. 1. Pending before the Court is the Government's Motion for Default Judgment, Permanent Injunction, and Other Equitable Relief (“Motion for Default Judgment”). ECF No. 9. No. hearing is necessary. See Loc. R. 105.6 (D. Md. 2016). For the following reasons, the Government's Motion for Default Judgment is granted.

         I. BACKGROUND

         Defendant Ulysses S. Martin, Jr. has owned and operated a dental practice since at least 2004. ECF No. 1 ¶ 6; ECF No. 9-2 ¶ 5. His practice is sometimes called Ulysses S. Martin, Jr., DDS, PC. Id. Employers such as Defendants are required to withhold federal income and Federal Insurance Contributions Act (“FICA”) taxes from their employees' wages and to pay those withholdings, along with the employer's own FICA and Federal Unemployment Tax Act (“FUTA”) taxes, to the Internal Revenue Service (“IRS”). See 26 U.S.C. §§ 3102, 3111, 3301, 3402. Employers must make periodic payments of the withheld taxes and their share of employment taxes in an appropriate federal depository bank. See 26 U.S.C. §§ 6302, 6157; 26 C.F.R. §§ 31.6302-1, 31.6302(c)-3. Employers are also required to file an employment tax return (Form 941) each quarter and an unemployment tax return (Form 940) annually. See 26 C.F.R. §§ 6011, 6071; 26 C.F.R. §§ 31.6011(a), 31.6071(a)-1.

         Defendants have had employees who were paid wages subject to federal withholding from at least 2004 through 2018. ECF No. 1 ¶ 7; ECF No. 9-2 ¶ 6. Defendants failed to file the unemployment tax return with the IRS for 2004 and 2009, ECF No. 1 ¶ 15; ECF No. 9-2 ¶ 7, and for 2005, 2013, 2015, 2016, and 2017, they filed the unemployment tax return after the due date, ECF No. 1 ¶ 16; ECF No. 9-2 ¶ 7. Since 2007, Defendants have also filed almost all of their quarterly employment tax returns after the due dates, ECF No. 1 ¶ 17; ECF No. 9-2 ¶ 8, and in 2015 and 2016, they filed all of their quarterly employment tax returns after the due dates. Id.

         For the past nine years, Defendants rarely made any tax deposits and the deposits that they did make were insufficient to pay the employment taxes. ECF No. 1 ¶ 12; ECF No. 9-2 ¶ 9. As a result of Defendants' failure to honor their tax liabilities, the dental practice has accrued over $110, 000 in unpaid employment and unemployment taxes. ECF No. 1 ¶¶ 13, 14; ECF No. 9-2 ¶ 10. As early as 2010, the IRS assigned a revenue officer to collect Defendants' unpaid tax liabilities, obtain unfiled returns, and encourage them to meet their tax obligations in the future. ECF No. 1 ¶ 18; ECF No. 9-2 ¶ 1. Defendants were dilatory in responding to requests for financial information, which led to the issuance of at least one third-party summons, and they would not enter a satisfactory payment agreement. ECF No. 1 ¶ 19; ECF No. 9-2 ¶¶ 11, 12.

         The IRS has taken various actions to collect Defendants' unpaid tax liabilities, such as sending demands for payment, levying on Defendants' bank accounts, recording Notices of Federal Tax Lien, and determining that seizing their business assets would result in minimal funds. ECF No. 1 ¶¶ 20, 21, 22, 23; ECF No. 9-2 ¶ 13. These actions were unsuccessful in collecting Defendants' unpaid employment tax liabilities, and the IRS could not locate any other assets. ECF No. 1 ¶ 24; ECF No. 9-2 ¶¶ 14, 15. The IRS provided notice to Defendants that a civil injunction might be pursued. ECF No. 1 ¶ 25; ECF No. 9-2 ¶ 16. All of the IRS's administrative efforts have failed to convince Defendants to comply with their tax obligations. ECF No. 1 ¶ 26; ECF No. 9-2 ¶ 17.

         The Government filed a Complaint for Permanent Injunction and Other Equitable Relief (“Complaint”) in this Court on June 4, 2019. ECF No. 1. Defendants were served on June 13, 2019, and proofs of service were filed on June 19, 2019. ECF No. 6. Defendants failed to file an answer or otherwise respond to the Complaint. The Government subsequently filed a Motion for Clerk's Entry Default on July 11, 2019, ECF No. 7, and the Clerk entered a default against Defendants on August 8, 2019, ECF No. 8. The Government filed its Motion for Default Judgment on August 13, 2019. ECF No. 9.

         II. STANDARD OF REVIEW

         “When a party against whom a judgment for affirmative relief is sought has failed to plead or otherwise defend, and that failure is shown by affidavit or otherwise, the clerk must enter the party's default.” Fed.R.Civ.P. 55(a). “A defendant's default does not automatically entitle the plaintiff to entry of a default judgment; rather, that decision is left to the discretion of the court.” Educ. Credit Mgmt. Corp. v. Optimum Welding, 285 F.R.D. 371, 373 (D. Md. 2012). Although “[t]he Fourth Circuit has a ‘strong policy' that ‘cases be decided on their merits, '” Choice Hotels Intern., Inc. v. Savannah Shakti Carp., No. DKC-11-0438, 2011 WL 5118328, at *2 (D. Md. Oct. 25, 2011) (citing United States v. Shaffer Equip. Co., 11 F.3d 450, 453 (4th Cir. 1993)), “default judgment may be appropriate when the adversary process has been halted because of an essentially unresponsive party[.]” Id. (citing S.E.C. v. Lawbaugh, 359 F.Supp.2d 418, 421 (D. Md. 2005)).

         “Upon default, the well-pled allegations in a complaint as to liability are taken as true, although the allegations as to damages are not.” Lawbaugh, 359 F.Supp.2d at 422. Thus, the court first determines whether the unchallenged factual allegations constitute a legitimate cause of action. Agora Fin., LLC v. Samler, 725 F.Supp.2d 491, 494 (D. Md. 2010). In determining whether the factual allegations constitute a legitimate cause of action, courts typically apply the Iqbal/Twombly pleading standard. See Baltimore Line Handling Co. v. Brophy, 771 F.Supp.2d 531, 544 (D. Md. 2011) (finding Iqbal “relevant to the default judgment inquiry”). Under Iqbal, a complaint fails to state a claim entitling the pleader to relief if the complaint offers only “‘labels and conclusions'” or “‘naked assertion[s]' devoid of ‘further factual enhancement.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555-57 (2007)). As the Fourth Circuit has recognized, “‘the court need not accept the legal conclusions drawn from the facts, and [ ] need not accept as true unwarranted inferences, unreasonable conclusions, or arguments.'” Monroe v. City of Charlottesville, 579 F.3d 380, 385- 86 (4th Cir.2009) (citation omitted), cert. denied, 559 U.S. 992 (2010); accord Simmons v. United Mortg. & Loan Investment, LLC, 634 F.3d 754, 768 (4th Cir. 2011). Indeed, “where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged-but it has not ‘show[n]'-‘that the pleader is entitled to relief.'” Iqbal, 556 U.S. at 679 (quoting Fed.R.Civ.P. 8(a)(2)).

         If liability is established, the court then makes an independent determination of damages. Agora Financial, LLC, 725 F.Supp.2d at 494. Fed.R.Civ.P. 54(c) limits the type of judgment that may be entered based on a party's default: “A default judgment must not differ in kind from, or exceed in amount, what is demanded in the pleadings.” In entering default judgment, a court cannot, therefore, award additional damages “because the defendant could not reasonably have expected that his damages would exceed th[e] amount [pled in the complaint].” In re Genesys Data Techs., Inc., 204 F.3d 124, 132 (4th Cir. 2000). While the Court may hold a hearing to prove damages, it is not required to do so; it may rely instead on “detailed affidavits or documentary evidence to determine the appropriate sum.” Adkins v. Teseo, 180 F.Supp.2d 15, 17 (D.D.C. 2001)) (citing United Artists Corp. v. Freeman, 605 F.2d 854, 857 (5th Cir. 1979)); see also Laborers' District Council Pension, et al. v. E.G.S., Inc., No. WDQ-09-3174, 2010 WL 1568595, at *3 (D. Md. Apr. 16, 2010) (“[O]n default judgment, the Court may only award damages without a hearing if the record supports the damages requested.”).

         III. DISCUSSION

         The Government seeks default judgment on its request for a permanent injunction requiring Defendants to honor their federal tax obligations.[1] Thus, the Court must determine whether the well-pled allegations in the Complaint, accepted as true, ...


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