Bhatia v. United States

• Court: District Court, E.D. California
• Decided: May 23, 2025
• Docket: 2:19-cv-02313
• Status: Unknown

Opinion

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 FOR THE EASTERN DISTRICT OF CALIFORNIA 10 11 GAGAN BHATIA, No. 2:19-cv-2313-DAD-SCR 12 Plaintiff, 13 v. FINDINGS AND RECOMMENDATIONS 14 UNITED STATES OF AMERICA, 15 Defendant. 16 17 UNITED STATES OF AMERICA, 18 Third-Party Plaintiff, 19 v. 20 HARINDER BHATIA, et al., 21 Third-Party Defendants. 22

23 24 Third-Party Plaintiff United States of America (“United States” or “Government”) has 25 filed a motion for default judgment against Third-Party Defendants Harinder and Harleen Bhatia. 26 ECF No. 43. The motion was taken under submission by the undersigned on September 27, 27 2024. No opposition has been filed. The motion for default judgment is before the undersigned 28 pursuant to Local Rule 302(c)(19). The Court hereby recommends that the motion be 1 GRANTED for the reasons set forth herein, and that the Clerk be directed to enter Judgment in 2 favor of the United States in the amount of $636,413.94 plus interest as determined by the 3 applicable statutes. 4 BACKGROUND and PROCEDURAL HISTORY 5 Plaintiff Gagan Bhatia initiated this matter on November 15, 2019 by filing a complaint 6 against the United States. ECF No. 1. Plaintiff sought to quiet title to real property located at 7 1517 Morgan Road, Modesto, California (the “Property”). Plaintiff alleged that the United States 8 had placed two tax liens on the Property – the first in the amount of $160,300.89 and the second 9 in the amount of $390,907.47. Id. at ¶¶ 13-14. Plaintiff alleged the tax liens were “arbitrary, 10 improper, unjust and unlawful.” Id. at ¶ 24. Plaintiff alleged that he and Harinder Bhatia 11 (“Harinder”) had purchased the Property in December 2015, with plans to develop a gas station 12 on it. Id. at ¶ 7. Plaintiff claimed that in January of 2017, Harinder informed him that he would 13 not be able to pay his cost of rehabilitating half the Property and he conveyed his one half interest 14 to Gagan in March 2017. Id. at ¶ 12. 15 The United States filed an amended answer and third-party complaint on May 7, 2021. 16 ECF No. 11. The United States asserted third-party claims against seven third-party defendants, 17 including Harinder and Harinder’s spouse (Harleen) (the “Bhatias”).1 The United States alleged 18 that the Bhatias had not paid their tax liability for 2015—a tax liability assessed in 2016—and 19 under operation of law tax liens were created in favor of the Government. ECF No. 11 at ¶¶ 15- 20 19. The Government contends that Harinder transferred his interest in the Property for 21 “insufficient consideration” of $20,000 in March 2017. Id. at ¶ ¶¶ 14, 28-29. The Government 22 alleges the transfer of Harinder’s interest was not done through judicial proceeding or other sale 23 with notice to the IRS and thus did not disturb the tax lien on the Property. Id. at ¶27. As of 24 April 2021, the Bhatias owed an outstanding balance on their federal taxes of $546,538.88. Id. at 25 ¶¶ 15-16. The United States sought to reduce this federal income tax assessment to judgment 26 pursuant to 26 U.S.C. § 7402(a). Id. at ¶¶ 21-23. 27 1 The third-party Bhatia defendants will be referred to hereafter by their first names for clarity, 28 and Harleen and Harinder referred to at times collectively as the Bhatias. 1 On August 22, 2023, the United States requested that the Clerk enter default as to 2 Harinder and Harleen (ECF No. 29) and the Clerk did so (ECF Nos. 30 & 32). The United States 3 dismissed some of the other third-party defendants. ECF Nos. 44 & 45. The United States 4 moved for entry of default judgment as to Harinder and Harleen on August 28, 2024. ECF No. 5 43. 6 Gagan and the United States entered into a Stipulation to Judgment. ECF No. 47. Gagan 7 and the United States also filed a Joint Status Report informing the Court that the Stipulation 8 represents “a settlement with regard to the extent that the Lien encumbers the Property” and 9 further stating that if the Court grants the motion for default judgment and enters judgment per 10 the Stipulation, all remaining claims in the Complaint and Third-Party Complaint will be 11 resolved. ECF No. 48. The undersigned ordered the United States to file a supplemental brief on 12 the impact—if any—the stipulation and proposed judgment between Gagan and the United States 13 would have on the proposed default judgment against the Bhatias. The United States filed that 14 supplemental brief on May 22, 2025. ECF No. 51. 15 LEGAL STANDARDS 16 Federal Rule of Civil Procedure 55(b)(2) governs applications to the court for default 17 judgment. Upon entry of default, the complaint’s well-pled factual allegations regarding liability 18 are taken as true, while allegations regarding the amount of damages must be proven. See Fair 19 Housing of Marin v. Combs, 285 F.3d 899, 906 (9th Cir. 2002); Dundee Cement Co. v. Howard 20 Pipe & Concrete Prods., 722 F.2d 1319, 1323 (7th Cir. 1983) (citing Pope v. United States, 323 21 U.S. 1 (1944); Geddes v. United Fin. Group, 559 F.2d 557 (9th Cir. 1977). 22 Where damages are liquidated, i.e., capable of ascertainment from definite figures 23 contained in documentary evidence or in detailed affidavits, judgment by default may be entered 24 without a damages hearing. Dundee, 722 F.2d at 1323. Unliquidated and punitive damages, 25 however, require “proving up” at an evidentiary hearing or through other means. Dundee, 722 26 F.2d at 1323-24; see also James v. Frame, 6 F.3d 307, 310-11 (5th Cir. 1993). 27 Granting or denying default judgment is within the court’s sound discretion. Draper v. 28 Coombs, 792 F.2d 915, 924-25 (9th Cir. 1986); Aldabe v. Aldabe, 616 F.2d. 1089, 1092 (9th Cir. 1 1980). The court considers a variety of factors in exercising its discretion. Eitel v. McCool, 782 2 F.2d 1470, 1471-72 (9th Cir. 1986). Among them are:

3 (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 4 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 5 underlying the Federal Rules of Civil Procedure favoring decisions on the merits. 6 Eitel, 782 F.2d at 1471-72 (citing 6 Moore’s Federal Practice ¶ 55-05[2], at 55-24 to 55-26). 7 ANALYSIS 8 I. Service 9 The United States argues that the Court should enter default judgment against Harinder 10 and Harleen because despite proper service “and additional communications” they have never 11 appeared and the Eitel factors weigh in favor of default judgment. ECF No. 43-1 at 2, 5-8. The 12 United States contends that Harinder and Harleen were both properly served with the summons 13 and complaint on April 20, 2023. ECF No. 26. The United States filed returns of service. ECF 14 No. 27. The Clerk entered default as to Harinder on August 23, 2023, and as to Harleen on 15 September 15, 2023. ECF Nos. 30 & 32. 16 There has been no challenge to the validity of service. A return of service is prima facie 17 evidence of valid service. SEC v. Internet Solutions for Business, Inc., 509 F.3d 1161, 1166 (9th 18 Cir. 2007) (internal citation omitted). A defendant may overcome this presumption only by 19 strong and convincing evidence. Id. The Court finds an adequate showing of service and will 20 proceed to the Eitel factors. 21 II. The Eitel Factors 22 A. Possibility of Prejudice to the Plaintiff 23 The first Eitel factor contemplates the possibility of prejudice to the plaintiff if a default 24 judgment is not entered. Eitel, 782 F.2d at 1471. Prejudice can be established where failure to 25 enter a default judgment would leave plaintiff without a proper remedy. Pepsico, Inc. v. Cal. Sec. 26 Cans, 238 F.Supp.2d 1172, 1177 (C.D. Cal 2002). The United States argues it will be prejudiced 27 if it cannot obtain judgment because it generally has 10 years to collect on a tax assessment (26 28 U.S.C. § 6502(a)(1)), but may collect on a judgment for 20 years (28 U.S.C. § 3201). ECF No. 1 43-1 at 5-6. On this basis, there is a real possibility of prejudice to Plaintiff absent default 2 judgment. This first factor weighs in Plaintiff’s favor. 3 B. Merits of Plaintiff’s Substantive Claims and Sufficiency of the Complaint 4 The second and third Eitel factors “relating to the merits of Plaintiffs’ claims and the 5 sufficiency of the complaint, can be discussed in tandem.” Ramirez v. Michael Cookson Const., 6 Inc., 2023 WL 4743050 (E.D. Cal. July 25, 2023) (internal citation omitted). The United States 7 argues that it has sufficiently pled facts to show the tax assessment is proper and remains unpaid. 8 ECF No. 43-1 at 6. As discussed above, the third-party complaint contains the factual allegations 9 concerning the Bhatias’ 2015 federal income tax return and assessment. ECF No. 11 at 11-12. 10 The Government pleads that as of the date of assessment, federal tax liens in favor of the United 11 States were created pursuant to 26 U.S.C. §§ 6321 and 6322, and the Government seeks to reduce 12 the assessment to judgment pursuant to 26 U.S.C. § 7402(a). 13 In a suit to reduce a tax assessment to judgment, the Government may satisfy its initial 14 burden of proof by introducing the assessment of taxes due. Oliver v. United States, 921 F.2d 15 916, 919 (9th Cir. 1990). The United States has submitted Form 4340 showing the Bhatias’ 2015 16 tax year assessment, and such forms are evidence of the assessment. ECF No. 43-3. See Hughes 17 v. U.S., 953 F.2d 531, 540 (9th Cir. 1992) (rejecting several evidentiary challenges to 4340 Forms 18 and stating they are “admissible evidence that valid assessments have been made”); U.S. v. 19 Whitman, 2013 WL 3968083, *4 (E.D. Cal. July 31, 2013) (“The Forms 4340 constitute a proper 20 means of establishing the facts of the administrative assessment and notice and demand for 21 payment”). The Government has also provided the Declaration of Suzanne Mitchell-Klent, a 22 Revenue Officer with the IRS stating that the amount owed for 2015 tax year including tax, 23 penalties, and interest is $636,413.94. ECF No. 43-4. 24 The Court finds that the second and third Eitel factors, concerning the merits of the 25 substantive claims and the sufficiency of the complaint, weigh in favor of the entry of default 26 judgment. 27 //// 28 //// 1 C. Sum of Money at Stake 2 In weighing the fourth Eitel factor, “the court must consider the amount of money at stake 3 in relation to the seriousness of the defendant’s conduct.” PepsiCo, Inc., 238 F.Supp.2d at 1176- 4 77. The factor weighs against default judgment when a large sum of money is at stake. Eitel, 782 5 F. 2d. at 1472. Here, the United States seeks a judgment of over $600,000 in damages. The 6 United States argues that this factor does not weigh against the entry of default because it is 7 simply seeking to reduce a tax liability to judgment and not seeking additional damages or fees. 8 ECF No. 43-1 at 7. The Court finds the significant amount of over $600,000 weighs against the 9 entry of default judgment.2 10 D. Possibility of Disputed Material Facts 11 The fifth Eitel factor examines whether a dispute regarding material facts exists. Eitel, 12 782 F.2d. at 1471-72. Here, Harinder and Harleen have not appeared in the action, or defended 13 the action. Generally, when a party fails to appear there is no possibility for a dispute of material 14 fact. See Elektra Entm’t Group, Inc. v. Crawford, 226 F.R.D. 388, 393 (C.D. Cal. 15 2005) (“Because all allegations in a well-pleaded complaint are taken as true after the court clerk 16 enters default judgment, there is no likelihood that any genuine issue of material fact exists”). 17 The United States offers very little argument on this point, contending that there is little 18 possibility of a dispute of fact because the tax assessment is based on information reported by the 19 Bhatias. ECF No. 43-1 at 7. The Court concludes there is not a likelihood of a dispute regarding 20 material facts, and accordingly, this factor weighs in favor of the entry of default judgment. 21 E. Whether the Default Was Due to Excusable Neglect 22 The sixth Eitel factor considers whether a defendant’s failure to answer is due to 23 excusable neglect. Eitel, 782 F.2d at 1471-72. This factor considers due process, ensuring a 24 defendant is given reasonable notice of the action. See Mullane v. Central Hanover Bank & Trust 25

26 2 The Court acknowledges that some courts have found even larger amounts in the context of tax liability to not weigh against default judgment. See O’Brien v. United States, 2010 WL 3636171, 27 *4 (D. Nev. Sept. 9, 2010) (“While the amount of money at stake is large in this case, the United States is only asking for judgment for the unpaid taxes and interest … Therefore, this factor does 28 not weigh against granting the United States a default judgment.”). 1 Co., 339 U.S. 306, 314 (1950). Here, the Bhatias were served with a copy of the summons and 2 complaint in April 2023 and proof of service filed. Additionally, the motion for default judgment 3 was served on the Bhatias. ECF No. 43 at 3. Counsel for the Government contacted Harinder in 4 August 2023 via phone and text message. ECF No. 43-2 at ¶¶ 2-3. Harinder was even deposed in 5 October 2023. Id. at ¶ 5. Gagan, who initiated this action in 2019, is Harinder’s brother. Id. at ¶ 6 7. Under these circumstances, it is inconceivable that the Bhatias’ failure to defend the action 7 was the result of excusable neglect. Shanghai Automation Instrument Co., Ltd. v. Kuei, 194 8 F.Supp.2d 995, 1005 (N.D. Cal. 2001) (finding no excusable neglect because the defendants were 9 served with the complaint, the notice of entry of default, as well as the papers in support of the 10 instant motion). The Bhatias have been well aware that this action was pending for years and 11 have not defended the action. This factor weighs in favor of entry of default judgment. 12 F. Policy of Deciding Cases on the Merits 13 The seventh Eitel factor considers the courts’ general disposition favoring judgments on 14 the merits. Eitel 782 F.2d at 1472. The Bhatias failure to appear has made a judgment on the 15 merits of the Government’s claim against them impossible. Accordingly, although the policy in 16 favor of deciding cases on the merits weighs against entry of default judgment, it does not weigh 17 strongly. 18 III. Terms of Judgment 19 The undersigned having found default judgment is appropriate, must now address the 20 amount of the judgment. After considering the Government’s briefing and the record in this case, 21 the undersigned recommends an award of $636,413.94 as of July 17, 2024, plus interest as 22 allowed by law.3 As discussed above, the Government submitted the 4340 Forms and the 23 declaration of Revenue Officer Mitchell-Klent in support of the calculation of damages. 24 CONCLUSION 25 The decision of whether to enter default judgment ultimately rests in the Court’s 26 discretion. NewGen, LLC v. Safe Cig, LLC, 840 F.3d 606, 617 (9th Cir. 2016) (“While there is 27 3 The United States’ proposed judgment states such interest should be pursuant to 26 U.S.C. § 28 6601. ECF No. 51-1. 1 | room to disagree whether default was warranted, our role is not to second guess the district 2 | court’s weighing of the Eite/ factors.”). The Court has considered all the Eite/ factors. “Of all the 3 || Eite/ factors, courts often consider the second and third factors to be the most important.” 4 | Ramirez v. Michael Cookson Const., Inc., 2023 WL 4743050 (E.D. Cal. July 25, 2023) (internal 5 || quotation and citation omitted). As discussed above, the Court finds that those two factors weigh 6 || in favor of the entry of default judgment. Moreover, the totality of the Eite/ factors weigh in 7 || favor of the entry of a default judgment for the United States. 8 IT IS HEREBY RECOMMENDED that: 9 1. Plaintiff's motion for default judgment (ECF No. 43) be GRANTED; and 10 2. Judgment be entered in favor of the United States in the amount of $636,413.94 plus 11 additional interest as provided by 26 U.S.C. § 6601. 12 These findings and recommendations are submitted to the United States District Judge 13 || assigned to the case, pursuant to the provisions of 28 U.S.C. § 636(b)(1). Within fourteen (14) 14 | days after these findings and recommendations are filed, any party may file written objections 15 | with the court. A document containing objections should be titled “Objections to Magistrate 16 | Judge’s Findings and Recommendations.” Any reply to the objections shall be served and filed 17 | within 14 days after service of the objections. The parties are advised that failure to file 18 | objections within the specified time may, under certain circumstances, waive the right to appeal 19 | the District Court’s order. See Martinez v. Yist, 951 F.2d 1153 (9th Cir. 1991). 20 || Dated: May 23, 2025 mda 22 SEAN C. RIORDAN 23 UNITED STATES MAGISTRATE JUDGE 24 25 26 27 28