United States v. Action Security, Inc.

• Court: District Court, D. Alaska
• Decided: January 10, 2024
• Docket: 3:19-cv-00134
• Status: Unknown

Opinion

1 IN THE UNITED STATES DISTRICT COURT

2 FOR THE DISTRICT OF ALASKA

4 UNITED STATES OF AMERICA,

5 Plaintiff, 6 v. Case No. 3:19-cv-00134-HRH-KFR 7

8 ACTION SECURITY, INC., and SCOTT HENKE,1 9

10 Defendants.

12 REPORT AND RECOMMENDATION

13 The Court recommends that Plaintiff’s Motion for Sanctions to Dissolve

14 Defendant Action Security, Inc. be GRANTED. The Court finds that Defendants have

15 repeatedly violated the orders of the District Court, have consistently engaged in

16 actions designed to frustrate the execution and intent of the District Cou rt’s orders,

17 and have willfully refused to abide by their obligation to pay taxes due on income

18 made during their business operations. Because Defendants through their actions

19 have demonstrated that they are unwilling or unable to abide by the District Court’s

20 orders, and because there is no reasonable lesser sanction that can be imposed in

21 this case to compel compliance, the Court recommends the following:

22  a permanent injunction against Defendants;

24 1 The Court notes that Defendant Action Security has never made an appearance in this action and that corporations may not proceed pro se, rather they must be represented by counsel. 25 Nonetheless, the Court finds that Defendant Action Security is properly before this Court. The Court has given Defendant Action Security ample opportunity to seek counsel and make 26 an appearance in this action. In addition, Mr. Henke stipulated on behalf of Defendant Action Security to the injunction in this case (thereby properly joining Defendant Action Security) and is considered its privy or actor-in-concert under Rule 65(d)(2)(C). Furthermore, the 27 government properly served Defendant Action Security by delivering the complaint and summons to its registered agent, Mr. Henke, in the District of Alaska. At that point, the 28 Court’s personal jurisdiction over Defendant Action Security solidified. 1  that Defendants cease accepting new clients within 30 days, cease

2 operating within 120 days, and conspicuously display at Action

3 Security’s entrance notice of the injunction;

4  that Mr. Henke not be permitted to directly or indirectly own, control,

5 manage, operate, or serve as an officer or director of any business until 6 the earlier of (1) his successful petition for relief if certain conditions 7 are met after one year from the injunction; or (2) 10 years; and 8  that Mr. Henke be incarcerated for one or more days if he violates the 9 injunction, with periods of incarceration increasing for successive 10 violations, based on the seriousness of those violations.2 11

12 I. PROCEDURAL BACKGROUND 13 On May 13, 2019, Plaintiff, United States of America, filed a Complaint for 14 Permanent Injunction against Defendants Action Security, Inc. and its owner, Scott 15 Henke, seeking to enjoin Defendants from continuing to pay wages to employees 16 without paying the associated federal employment taxes.3 Plaintiffs properly served 17 Defendants; however, Defendants did not file an Answer or make a timely 18 appearance.4 As a result, Plaintiff filed a Motion for Entry of Default against 19 Defendants.5 The Clerk of Court entered an Order of Default and on September 18, 20 2019, Plaintiff filed a Motion for Default Judgment.6 On September 23, 2019, Plaintiff 21 filed a Stipulation for Entry of Permanent Injunction against Defendants and 22 withdrew its Motion for Entry of Default Judgment.7 23 The Court issued a Judgment and Permanent Injunction against Defendants on 24 September 25, 2019, with detailed directions to be regularly and consistently 25

26 2 Doc. 87 at 31-32. 3 Doc. 1. 4 Docs. 8-9. 27 5 Docs. 12-13. 6 Docs. 14-16. 28 7 Docs. 17-18. 1 completed by the parties (hereinafter “Injunction Order”).8 The Court retained

2 jurisdiction over the case for a five-year period to ensure compliance with the

3 injunction.

4 One year later, Plaintiff filed a Motion for Order to Show Cause, alleging that

5 Defendants failed to comply with the requirements of the Injunction Order.9 6 Defendants did not timely respond.10 The Court solicited input from Plaintiff as to 7 how to proceed given Defendants’ failure to respond to the Court’s order directing 8 response,11 and Plaintiff requested appointment of a receiver.12 The Court ordered 9 Defendants to appear on March 22, 2022, “to show cause why they should not be 10 held in contempt for their failure to comply with the [Injunction Order].”13 11 Defendants failed to appear.14 12 On March 24, 2022, the Court granted Plaintiff’s contempt motion, and the 13 Court appointed Lisa Fink to act as a receiver (hereinafter “Appointment Order”).15 14 Ms. Fink’s duties included ensuring Defendants complied with the Injunction Order 15 and overseeing Defendants’ business operations.16 The District Court’s Appointment 16 Order also gave Ms. Fink broad access to Defendants’ business and authority over its 17 operations.17 The Appointment Order also ordered Defendants’ compliance, 18 enjoining them from interfering with Ms. Fink in the exercise of her duties.18 19 Three months later, Ms. Fink filed a status report as directed by the District 20 Court.19 Ms. Fink documented Mr. Henke’s noncompliance with the District Court’s 21 Injunction and Appointment Orders.20 Ms. Fink concluded that the receivership was 22 8 See Doc. 19. 23 9 Doc. 20. 10 Doc. 24. 24 11 Doc. 21. 12 Docs. 26-27. 25 13 Doc. 28. 14 Doc. 35. 26 15 Doc. 37. 16 Id. at 2-5. 17 Id. at 5-8. 27 18 Id. at 9. 19 Doc. 39. 28 20 Doc. 39-1 at 1. 1 “economically unfeasible” due to the “necessary cleanup and overhaul” the

2 receivership required and the fact that she had “already spent 25 hours [working

3 with Defendants] but accomplished little due to [Mr.] Henke’s unresponsiveness.”21

4 On July 12, 2022, Plaintiff filed a Motion for Sanctions to Dissolve Defendant

5 Action Security, Inc.22 Mr. Henke requ ested additional time to respond to this 6 motion, which the Court granted.23 Mr. Henke then filed a “Motion for Dismissal of 7 Motion” requesting that Plaintiff’s Motion to Dissolve his company not be granted, 8 accompanied by an affidavit where he took issue with Ms. Fink’s status report.24 9 Plaintiff replied and the Court set an evidentiary hearing.25 10 In the meantime, Ms. Fink filed a second status report, warning that she did 11 not think the receivership was sustainable given Mr. Henke’s non-compliance and 12 avoidance, and Defendants requested time to secure counsel.26 The District Court 13 granted Defendants’ motion and reset the evidentiary hearing to November 30, 14 2022.27 On November 30, 2022, Mr. Henke made an oral motion to continue the 15 evidentiary hearing.28 The Court directed the parties to confer and propose 16 alternative dates for an evidentiary hearing. The Court then referred the case to this 17 Court for purposes of the evidentiary hearing and post-judgment proceedings.29 18 This Court held an evidentiary hearing on February 28 and March 1, 2023.30 19 At the hearing Plaintiff called Mr. Henke, IRS Revenue Officer (“RO”) Terence 20 Johnson, Ms. Fink, and Ms. Fink’s assistant, Elizabeth Barr.31 Defendants called Mr. 21 Henke.32 At the conclusion of the hearing this Court ordered the parties to file post- 22

23 21 Id. 22 Doc. 40. 24 23 Docs. 41-42. 24 Doc. 43. 25 25 Docs. 45-46. 26 Docs. 48-50. 26 27 Doc. 51. 28 Doc. 55. 29 Doc. 61. 27 30 Docs. 65-66. 31 Docs. 65-67. 28 32 Id. 1 hearing supplemental briefing with proposed findings of fact and conclusions of

2 law.33

3 In accordance with the Appointment Order, Ms. Fink filed her third and final

4 status report on March 22, 2023.34 In this report, Ms. Fink gave notice of her

5 resignation due to Defendants’ unwilling ness to communicate or otherwise work 6 with her or her team as instructed by the Court.35 7 II. STATEMENT OF FACTS 8 a. An Employer’s Duty to Report and Pay Taxes 9 i. 941 Employment Taxes 10 Employers must withhold Federal Insurance Compensation Act (“FICA” or 11 Social Security) taxes, Medicare taxes, and income taxes from their workers’ 12 paychecks.36 The employer then has until the end of each calendar quarter — either 13 March 31, June 30, September 30, or December 31 — to forward its workers’ taxes to 14 the Internal Revenue Service (“IRS”).37 Until then, the employer holds the money 15 “in trust for the United States.”38 16 An employer must also pay its own Social Security and Medicare taxes each 17 quarter.39 Together with its workers’ tax withholdings, these payments are called 18 “employment taxes.” An employment tax return, IRS Form 941, comes due a month 19 after the quarter ends.40 The IRS uses this return to determine the employment taxes 20 owed for that quarter — and thus, whether the employer paid in full. 21 // 22 // 23

24 33 Doc. 74. 34 Doc. 73. 25 35 Id. The Appointment Order stated that the Receiver may file notice of her resignation; however, such resignation shall not be effective until the Court appoints a successor. 26 36 See 26 U.S.C. §§ 3102, 3402. 37 See 26 C.F.R. § 31.6071(a)-1(a); see also February 28, 2023 Evidentiary Hearing Transcript 49:7–8 (hereinafter “Feb. 28 Tr.”). 27 38 26 U.S.C. § 7501. 39 26 U.S.C. §§ 3111, 3301. 28 40 See 26 C.F.R. § 31.6071(a)-1(a); see also Feb. 28 Tr. at 48:21–22. 1 ii. 940 Unemployment Taxes

2 Employers must separately pay Federal Unemployment Tax Act (“FUTA”)

3 taxes equal to 6% of their employees’ wages.41 Depending on the amount owed,

4 unemployment taxes must be paid either quarterly (every three months) or annually

5 (by January 31).42 An unemployment tax r eturn, IRS Form 940, must also be filed by 6 the payment deadline.43 7 iii. 1120 Corporate Income Taxes 8 Taxable corporations must file an annual corporate income tax return, IRS 9 Form 1120.44

10 b. Defendants’ Business Falters and Fails to Comply with its Obligations to the IRS. 11 12 Mr. Henke’s parents founded Action Security, Inc. in 1963.45 The firm was 13 incorporated on or about November 25, 1974, and was administratively dissolved by 14 the State of Alaska on or around October 1, 2016. The firm then began operating 15 under the name “Action Security.” Action Security provides locksmith and security 16 services. Mr. Henke acquired shares of the company over the years and eventually 17 became its sole owner, director, president, secretary, shareholder, and treasurer in 18 2016.46 19 Between 2010 and 2016, Mr. Henke litigated his divorce proceedings, which 20 resulted in him being able to keep Action Security, but required him to make a payout 21 to his ex-wife that he reported to be more than $2 million.47 The result, according 22 to Mr. Henke, was “financial ruin”48 for him and Action Security, which led to the 23 24

25 41 See 26 U.S.C. § 3301. 42 See 26 C.F.R. § 31.6302(c)-3(a). 26 43 See 26 C.F.R. § 31.6071(a)-1(a). 44 See 26 C.F.R. § 1.6012-2(a); see also Feb. 28 Tr. at 51:25-52:4. 45 March 1 Evidentiary Hearing Transcript 50:20-23 (hereinafter “Mar. 1 Tr.”) 27 46 Feb. 28 Tr. at 10:25–11:2; Mar. 1 Tr. at 50:25–51:6. 47 Mar. 1 Tr. at 51:5-6; 5:21–6:7. 28 48 Id. at 51:8-12. 1 closure of five Action Security offices throughout the State of Alaska and dismissal

2 of 30 employees.49

3 In 2014, during the pendency of his divorce, Action Security ceased paying

4 employment taxes or filing returns.50 Defendants began spending taxes withheld

5 from their employees’ paychecks on their own expenses instead of forwarding the 6 money to the IRS and they ceased filing or paying their own federal taxes.51 7 c. The IRS Attempts to Recover Money Owed to It. 8 Between June 2016 and March 2019, the IRS undertook myriad efforts to bring 9 Defendants into tax compliance, giving them repeated warnings of what might 10 happen if they did not comply. Specifically, the IRS: 11 1. advised Mr. Henke on how to follow the Internal Revenue Code; 12 2. recorded multiple federal tax liens against Action Security between 13 June 13, 2016, and March 27, 2019; 14 3. served notices of intent to levy Action Security’s financial accounts 15 and levied on Action Security’s bank accounts and credit card 16 merchant account; 17 4. assessed trust fund recovery penalties against Mr. Henke, under 26 18 U.S.C. § 6672, for multiple quarterly periods, making him personally 19 liable for Action Security’s unpaid 941 employment taxes withheld 20 from the wages of its employees; 21 5. threatened to sue for an injunction if Defendants did not file returns 22 and pay taxes; and 23 6. delivered an IRS Letter 903 and Notice 931 to Defendants on October 24 12, 2017, which placed Action Security on notice that the IRS might 25 26

27 49 Id. at 5:24–6:1. 50 Feb. 28 Tr. at 113:1-8. 28 51 Id. at 161:10-22. 1 pursue a suit for civil injunction if Action Security continued to fail

2 to comply with its employment tax obligations.52

3 None of this persuaded Defendants to file their tax paperwork or pay the IRS

4 and Action Security’s tax debt continued to grow.53 As a result, on May 13, 2019,

5 Plaintiff filed a Complaint to enjoin Defe ndants from continuing to pyramid their 6 federal tax debt.54 To that point, Mr. Henke and Action Security had failed to report 7 or pay employment taxes (Form 941) from the fourth quarter of 2014 onward; 8 unemployment taxes (form 940) for 2015 and 2017 onward; and corporate income 9 taxes for fiscal year 2014 onward.55 10 Defendants initially ignored Plaintiff’s lawsuit.56 After the Clerk entered a 11 default judgment against Defendants,57 the government notified Mr. Henke in 12 writing of the default judgment and suggested in a letter that the parties resolve the 13 pending case with a stipulated injunction rather than a default judgment.58 The 14 letter included a proposed stipulation and injunction.59 15 After approximately one week of negotiation over its terms, and the exchange 16 of three drafts, Mr. Henke stipulated to the injunction.60 The District Court entered 17 the Stipulated Injunction on September 25, 2019.61 The Stipulated Injunction 18 included the following terms: 19 1. Defendants shall properly withhold from their employees’ paychecks 20 appropriate amounts of income tax and FICA and Medicare taxes; 21

52 Doc. 40 at 4-5; Doc. 15 at 4. 22 53 Feb. 28 Tr. at 43:11-20. 54 Doc. 1. The term "pyramiding" refers to the accumulation of tax liability from each 23 successive failure to remit payments. One cause for a pyramiding tax debt can be the lack of profit or capital for operating costs, forcing the business owner to use funds that should 24 be deposited into employment tax trust accounts to pay bills, resulting in an accumulation (or “pyramiding”) of tax liabilities. See IRS Publication IR-2004-47 (Apr. 5, 2004), available 25 at https://www.irs.gov/pub/irs-news/ir-04-047.pdf. 55 See Doc. 68, Ex. 4 at 1-89. 26 56 Docs. 8, 9. 57 Doc. 14. 58 Doc. 16; Doc. 16-1 at 2. 27 59 See Doc. 16-1 at 5-6. 60 Docs. 16-1, 17. 28 61 Doc. 19. 1 2. Defendants shall deposit in an appropriate bank employee taxes,

2 employer FICA and Medicare taxes, and FUTA taxes;

3 3. Defendants shall sign and deliver to the IRS on the first of every month

4 an affidavit stating that the required income, FICA and Medicare, and

5 FUTA taxes had been properl y deposited for each pay period during the 6 prior month; 7 4. Defendants shall timely file IRS Forms 941 and 940 and provide a copy 8 of the filed forms to the IRS within five days of filing; 9 5. Defendants shall pay all required outstanding liabilities due on each tax 10 return filed pursuant to the District Court’s order; 11 6. Defendants shall not pay other creditors prior to paying amounts owed 12 to the IRS; 13 7. Defendants shall not pay employee salaries except through an approved 14 payroll services provider; 15 8. Defendants shall permit periodic inspection by the IRS of its books and 16 records; and 17 9. Mr. Henke shall inform the IRS if he forms, incorporates, or works in a 18 managerial capacity for any other business.62 19 The District Court told Defendants that failure to abide by the Stipulated 20 Injunction could result in “a motion for an order to show cause why Defendants 21 should not be held in contempt[.]”63 The District Court stated that possible sanctions 22 for violating the order included being ordered to “cease doing business immediately” 23 and being “permanently enjoined from forming, incorporating, or owning another 24 business entity and working for any business in [any tax-related capacity.]”64 25 26

62 Id. at 2-4. The Court adopted the language contained in the Proposed Order submitted by 27 the parties with their Stipulation for Entry of Permanent Injunction. See Doc. 17. 63 Doc. 19 at 5. 28 64 Id. 1 Mr. Henke did little to nothing to comply with the Stipulated Injunction. On

2 October 30, 2019, RO Johnson traveled to Anchorage from his duty station in the

3 Lower 48 to review the terms of the injunction with Mr. Henke.65 Revenue Officer

4 Johnson scheduled a follow-up trip to Alaska to meet with Mr. Henke on Tuesday,

5 November 19; however, after RO Johnson ’s arrival on Monday, Mr. Henke cancelled 6 that meeting.66 When RO Johnson responded that he could meet any day that week, 7 Mr. Henke said that he was unavailable.67 A follow-up meeting between RO Johnson 8 and Mr. Henke never occurred.68 9 For the next two and a half years, Mr. Henke continued to fail to comply with 10 the injunction. During this period, Mr. Henke and Action Security paid the IRS 11 exactly twice.69 Both times were in November 2019 and totaled $2,563.40.70 All the 12 while, Action Security continued operating as a business, paying other expenses like 13 rent and utilities71 and withholding its employees’ federal tax withholdings. Action 14 Security did not file any federal tax returns during this period.72 15 Attempts by the government to force compliance by Mr. Henke with the terms 16 of the injunction were met with avoidance, resistance, and deception. In June 2020, 17 the government sent a letter to Mr. Henke informing him that he had not paid all 18 employment taxes for the third and fourth quarters of 2019, filed Action Security’s 19 tax returns, or sent RO Johnson the required documents, all of which were required 20 under the Stipulated Injunction.73 Mr. Henke replied that he had submitted the 21 unemployment tax returns for the second half of 2019 but would be “more than 22 happy to resend them,” and that he would contact RO Johnson in the morning.74 23

24 65 Feb. 28 Tr. at 64:6-12. 66 Id. at 65:1-9. 25 67 Id. at 65:10-17. 68 Id. 26 69 Feb. 28 Tr. at 63:6–64:5. 70 Doc. 68, Ex. 4 at 2. 71 Feb. 28 Tr. at 19:2–7. 27 72 Doc. 68, Ex. 4 at 1–89; see also Mar. 1 Tr. at 46:3–5. 73 Doc. 20-1 at 2. 28 74 Id. at 2, 16; see also infra notes 69-70. 1 Twelve days later, after ignoring the government for four of those days because “the

2 fish [were] calling,” and after the government threatened to seek an order to show

3 cause, Mr. Henke finally sent receipts for his two 2019 payments.75 (Later

4 accounting would determine that these payments were approximately $2,000

5 short.76) Mr. Henke also explained tha t he failed to meet with RO Johnson on 6 November 19, 2019, because the two of them “got their dates crossed.”77 7 Subsequent attempts by the government to communicate with Defendants 8 went unanswered. On July 20, 2020, the government sent a letter to Mr. Henke 9 seeking the filing of Forms 941, questioning the sufficiency of the tax payments made 10 in 2019, and reminding Mr. Henke that RO Johnson was waiting on documents.78 11 The letter also included a table detailing to that point Defendants’ numerous 12 violations of the Stipulated Injunction.79 That letter went unanswered.80

13 d. The Court Appoints a Receiver and Warns Defendant of the Consequences of Failing to Comply. 14 15 In October 2020, Plaintiff asked the Court to hold Defendants in contempt of 16 the injunction.81 The Court ordered Defendants to respond to the motion within 14 17 days, and to appear at the contempt hearing, but Defendants did neither.82 The Court 18 found Defendants in contempt and appointed a Receiver, Lisa Fink, on March 24, 19 2022, to ensure Defendants’ compliance with the Stipulated Injunction going 20 forward.83 21 In the Appointment Order, the District Court ordered Defendants to work with 22 Ms. Fink and enjoined them “from interfering in any manner with the discharge of 23 24 75 Id. at 2, 21, 24. 25 76 Doc. 68, Ex. 4 at 86. 77 Doc. 20-1 at 3, 24. 26 78 Id. at 3, 37-38. 79 Id. 80 Id. at 6. 27 81 Doc. 20. 82 Docs. 21, 24, 28. 28 83 Docs. 36-37. 1 the Receiver’s duties and exercising [of] her authorities.”84 Among other things, the

2 Appointment Order granted Ms. Fink keys to and the alarm code for Action Security’s

3 premises, access to its books and records, and copies of all mail and

4 correspondence.85 Additionally, the Court granted Ms. Fink authority to implement

5 “accounting and control procedures to facilitate the efficient and proper 6 administration of Action Security.”86 Like the Stipulated Injunction, the 7 Appointment Order again warned Defendants of the consequences of failing to 8 comply. Specifically, the Appointment Order stated,

9 [i]n the event Action Security remains in violation of the Injunction 10 Order, the Receiver shall take reasonable and appropriate steps to cure those violations as soon as possible. If the Receiver is unable to cure 11 those violations and determines that Action Security is unable or 12 unwilling to comply . . . the United States shall immediately seek the permanent closure of Action Security.87 13 e. Defendants Fail to Work with the Receiver in Violation of the 14 Court’s Order. 15 On April 26, 2022, Ms. Fink contacted Mr. Henke to set up an initial meeting.88 16 During that call, Mr. Henke told Ms. Fink that he was not available for two weeks 17 but would call to set up a meeting to take place during the week of May 9, 2022.89 18 Mr. Henke did not call back, however, and only after calling Action Security on three 19 occasions was Ms. Fink able to speak with Mr. Henke and arrange a meeting to take 20 place at close of business on May 9, 2022.90 When Ms. Fink called on May 9, 2022, 21 to remind Mr. Henke of this meeting, he asked to reschedule to close of business on 22 the following day.91 23 24

25 84 Doc. 37 at 8. 85 Id. at 5-6. 26 86 Id. at 7. 87 Id. at 5 (emphasis added). 88 Feb. 28 Tr. at 97:1-4, 8-11; Doc. 40-1. 27 89 Doc. 40-1. 90 Feb. 28 Tr. at 97:1-4; Doc. 40-1 at 2. 28 91 Doc. 40-1 at 2. 1 Ms. Fink and her assistant met with Mr. Henke on May 10, 2022. During this

2 meeting, Mr. Henke showed Ms. Fink his accounting system, which consisted of

3 using the desktop version of QuickBooks to generate employee paychecks and

4 withhold those employees’ federal taxes.92 Mr. Henke did not use the other features

5 of QuickBooks which would have allowed him to track invoices, debts, and profits 6 and losses.93 Also, because Mr. Henke used only the desktop version of the software, 7 as opposed to a cloud-based system, Ms. Fink was unable to easily access the 8 software remotely.94 9 Mr. Henke also explained that he used the point-of-sale platform Square95 to 10 process credit card payments and a Wells Fargo account for cash and check 11 payments.96 Payments from Square, which were the majority of payments received 12 by Action Security, were then transferred to the Wells Fargo account as needed to 13 pay rent, bills, and payroll.97 The rest remained in the Square account to protect the 14 money from creditors,98 and was used to pay expenses through a debit card linked 15 to that account.99 16 At the initial meeting on May 10, 2022, Ms. Fink gave Mr. Henke instructions 17 to give her materials she needed to fulfill her obligations as a receiver.100 The items 18 Ms. Fink asked for included keys and alarm access codes for the Action Security shop; 19 logins and passwords to Action Security’s QuickBooks, Square, and Wells Fargo 20 accounts; a summary of Action Security’s inventory; a daily sales report; and a list 21 of Action Security’s invoices and debts.101 Ms. Fink also told Mr. Henke to install 22 92 Feb. 28 Tr. at 98:10-102:17. 23 93 Feb. 28 Tr. at 98:25-99:6, 101:25-6. 94 Id. at 109:8-13. 24 95 Square is a business that allows retailers to process credit card payments through a retail terminal or other digital reader connected to a smart phone or tablet. See SQUARE, 25 https://squareup.com/us/en (last accessed Jan. 5, 2024). 96 Feb. 28 Tr. at 99:13-23, 100:1-4. 26 97 Id. at 102:15-18; see also Doc. 68, Ex. 7. 98 Mar. 1 Tr. at 54:9-12. 99 Feb. 28 Tr. at 102:18-22. 27 100 Id. 104:1–4; Doc. 40-1. 101 Feb. 28 Tr. at 105:11–19, 116:24–117:5, 169:8–13; Doc. 40-1. Access to these items was 28 explicitly ordered by the District Court in its order appointing Ms. Fink. Doc. 37 at 5-6. 1 RemotePC on his computer so she could access his desktop version of QuickBooks

2 from her office.102 Mr. Henke said that he would “get it done.”103

3 Ms. Fink then met with Mr. Henke later in May at a Wells Fargo Bank in order

4 to get access to his bank account.104 At that point in time, the account had no money,

5 and Mr. Henke had overdrawn it severa l times.105 The account statements also 6 showed that Mr. Henke had made withdrawals from the account of approximately 7 “$7,000, $8,000” soon after the receivership began.106 The account statements did 8 not show any similar patterns of withdrawals before this.107 Mr. Henke told Ms. Fink 9 that the withdrawals were for cashier’s checks to pay vendors; however, he was 10 unable to provide her with copies of those checks.108 11 Ms. Fink returned to Action Security on June 9, 2022, to log into QuickBooks 12 from Mr. Henke’s desktop computer and access information necessary to prepare 13 delinquent tax returns.109 Working with Mr. Henke to access his financial records, 14 Ms. Fink “pulled everything off QuickBooks” so that she could “prepare all of the 15 940s, all of the 941s that were due.”110 That evening, Mr. Henke texted Ms. Fink: 16 “Thank you for your help today. I appreciate the help.”111 17 Ms. Barr, Ms. Fink’s assistant, used Mr. Henke’s payroll history to prepare 18 every delinquent employment and unemployment tax return up to the first quarter 19 of 2022 – the most recent deadline.112 Ms. Barr then brought Mr. Henke the 20 completed returns to review and sign, which he did.113 As a result of these filings, 21

22 102 Feb. 28 Tr. at 109:7-18. RemotePC is software that allows a user at one internet- connected computer to access and run an internet-connected computer in another location. 23 See REMOTEPC, https://www.remotedesktop.com/ (last accessed Jan. 5, 2024). 103 Feb. 28 Tr. at 105:21. 24 104 Id. at 105:25-106:1–11. 105 Id. at 106:13-16. 25 106 Id. at 106:17–107:2. 107 Id. at 157:9–13. 26 108 Id. at 106:23-25. 109 Id. at 107:7–108:2. RemotePC access had not been provided. 110 Id. at 107:20–108:2; Mar. 1 Tr. at 34:5–8. 27 111 Doc. 68, Def. Ex. D. 112 Feb. 28 Tr. at 107:20–108:9. 28 113 Id. at 38:18–19, 199:14–16; Doc. 40-1 ¶ 19. 1 the IRS determined that Action Security owed $1,893,951.33 in unpaid employment

2 taxes and $2,189.64 in unpaid unemployment taxes.114

3 This was the apex of Mr. Henke’s cooperation with Ms. Fink and the last

4 substantive action Ms. Fink was able to accomplish as Receiver. Despite her request,

5 Mr. Henke failed to provide Ms. Fink with all of the items she requested during their 6 initial meeting.115 As a result, Ms. Fink was not able to prepare Action Security’s 7 corporate income tax returns because she had no data on the business’s income.116 8 Her lack of access also meant that she could not prepare the employment and 9 unemployment tax returns that came due after the first quarter of 2022.117 10 In its Appointment Order, the District Court directed Ms. Fink to file periodic 11 status reports.118 In her first status report on June 24, 2022, Ms. Fink stated that in 12 her professional opinion Mr. Henke showed “no desire to become whole on his 13 federal tax debt,” noting that it took multiple phone calls with Mr. Henke to arrange 14 both her initial meeting in May 2022 and the follow-up meeting in June 2022.119 Ms. 15 Fink also described how Mr. Henke had failed to complete the “simple accounting 16 tasks” she had instructed him to complete,120 and had not given her the keys and 17 codes to Action Security, nor had he given her passwords or completed an 18 inventory.121 In addition, Ms. Fink reported that Mr. Henke continued to 19 misappropriate nearly all the federal taxes withheld from his employees’ 20 paychecks,122 and further warned the District Court that Mr. Henke’s 21 unresponsiveness “may make this receivership economically unfeasible.”123

22 114 Doc. 68, Govt. Exs. 4 and 5. 115 Feb. 28 Tr. at 111:17–22. 23 116 Id. at 111:1-15. 117 Id. 109:19–110:9. 24 118 Doc. 37 at 9. The order directed a Status Report to be filed at the end of three months, six months, 12 months, 18 months, and 24 months after entry of the order. 25 119 Doc. 39-1. 120 Id. 26 121 Id. 122 Doc. 48-1 at 1. 123 Doc. 39-1. Ms. Fink stated to the Court during the evidentiary hearing that a turning point 27 for a company often occurs between three and six months of engagement. See Feb. 28 Tr. at 155:4-5. At that point, it becomes clear, “[t]hey either follow up or they avoid.” Feb. 28 28 Tr. at 155:8. 1 On July 12, 2022, Plaintiff moved for an injunction to permanently close Action

2 Security and enjoin Mr. Henke from starting a new business.124 In its motion,

3 Plaintiff argued that it had already tried everything short of shuttering the business,

4 yet Defendants’ lawbreaking persisted.125 Plaintiff asked the Court to (1) hold

5 Defendants in contempt of the Stipulated Injunction, (2) dissolve Action Security, 6 and (3) enjoin Mr. Henke from owning or operating another business for 10 years.126 7 Shortly thereafter, Action Security missed the deadline to file a second quarter 8 employment tax return.127 9 Mr. Henke submitted an affidavit on August 16, 2022, disputing the assertions 10 made in Ms. Fink’s status report and asking for more time to resolve the matter.128 11 Mr. Henke asked the Court to deny the United States’ motion, claiming that: (1) 12 Action Security had filed all 941 tax returns; and (2) Action Security was current on 13 its third quarter 941 taxes.129 Mr. Henke claimed that Action Security’s sales had 14 increased “at the rate of 40%-50%...[a]llowing opportunity to repay IRS debt.”130 15 Mr. Henke also reported that prior to Ms. Fink’s appointment, he had been 16 “attempt[ing] to find legal and accounting support without any success.”131 17 After reading Mr. Henke’s affidavit, Ms. Fink proposed a new arrangement to 18 him: If Mr. Henke gave the receivership another try, as he said he would, then he 19 could work with her assistant, Ms. Barr, instead of Ms. Fink.132 Ms. Fink saw her 20 assistant as “the calming factor” and hoped that communicating through Ms. Barr 21 would help compel Mr. Henke to take action.133 22 23

24 124 Doc. 40. 125 Doc. 87 at 18. 25 126 Doc. 40. 127 Id. Ex. 4 at 84–85; Feb. 28 Tr. at 50:3–12. 26 128 Doc. 43. 129 Id. 130 Id. 27 131 Id. 132 Feb. 28 Tr. at 114:14-25. 28 133 Id. at 153:23–154:4. 1 On Thursday, August 18, 2022, two days after Mr. Henke submitted his

2 affidavit, Ms. Barr called Mr. Henke to remind him of the items that Ms. Fink still

3 needed.134 In a follow-up email sent that same day, Ms. Fink listed 10 action items

4 for Mr. Henke to complete, including numerous QuickBooks-related matters, access

5 to the Square payment system, keys an d an access code to the Action Security 6 building, emailed daily sales reports, and a completed inventory.135 Ms. Barr also 7 volunteered her office’s IT personnel to assist Mr. Henke with restoring his 8 computer, which Mr. Henke said had been down since July 15, 2022.136 9 Ms. Barr asked for the items to be completed by close of business Monday, 10 August 22, 2022.137 Mr. Henke missed this deadline.138 Consequently, Ms. Barr 11 emailed Mr. Henke that day to remind him of the things that she needed done.139 12 On August 23, 2022, Ms. Barr spoke with Mr. Henke.140 During that 13 conversation, Mr. Henke informed Ms. Barr that he had completed several of the 14 items, including creating a backup copy of his QuickBooks, generating a payroll 15 summary, paying his second quarter 2022 unemployment taxes, providing a login 16 for the Square account, and cutting a key to the Action Security building and 17 arranging for a new alarm access code.141 However, neither Ms. Fink nor Ms. Barr 18 ever received any of these materials from Mr. Henke despite his representation to 19 Ms. Barr that he would send them the following day.142 Reminder emails and phone 20 21

134 Id. at 168:24-25–169:1-23. 22 135 Doc. 68, Ex. 9. 136 Id.; Feb. 28 Tr. at 170:1-24. 23 137 Feb. 28 Tr. at 171:21-22. 138 Id. at 172:20-25-173:1-16. 24 139 Doc. 68, Ex. 10. 140 Doc. 68, Ex. 11. 25 141 Id. 142 Feb. 28 Tr. at 175:23-179:25, 181:11-22. A backup QuickBooks copy was apparently 26 provided to Ms. Fink by Mr. Henke; however, the file was inaccessible. Id. at 176:13-22. In addition, Mr. Henke did ultimately provide a password for the Square account. However, because two-factor authentication was needed to remotely log in, attempts by Ms. Fink and 27 Ms. Barr to access the Square information required Mr. Henke to forward them a randomly generated authentication code. After initially providing the information, Mr. Henke stopped 28 providing Ms. Fink and Ms. Barr with the authentication code. 1 calls from Ms. Barr on August 25, 28, and 29, 2022, failed to produce the entirety of

2 the requested information.143

3 Ms. Fink filed her second status report on September 23, 2022.144 This report

4 presented the same negative outlook toward Defendants’ ability or willingness to

5 comply with the terms of the injunction. According to Ms. Fink, Mr. Henke

6 [showed no] willingness to cooperate with [Ms. Fink], adopt proper accounting practices, and ultimately ensure that his federal taxes are 7 reported and paid on time. Since May, [Mr. Henke] has persistently failed to complete the often-simple assignments [Ms. Fink] gave him, 8 usually without so much as requesting an extension.145 9 Mr. Henke’s unresponsiveness and non-compliant behavior were consistent, despite 10 reminders and requests from Ms. Fink and Ms. Barr.146 Without access to Mr. 11 Henke’s QuickBooks, Ms. Fink reported that she would not be able to prepare returns 12 and did not expect his returns to be filed on time.147 Ms. Fink also informed the 13 District Court that Mr. Henke’s business “appear[ed] to be insolvent,” based on Mr. 14 Henke going over a month without paying his salaried employees and overdrawing 15 “his only bank account 6 times since May [2022].”148 And again, Ms. Fink put the 16 District Court and Mr. Henke on notice that she did not think the receivership was 17 feasible and that it should not continue due to Mr. Henke’s refusal to cooperate.149 18 The parties appeared on November 30, 2022, for a scheduled evidentiary 19 hearing on Plaintiff’s Motion for Sanctions to Dissolve Action Security.150 Mr. Henke 20 asked to postpone the hearing, claiming that he had an intestinal flu and 102-degree 21 fever.151 Mr. Henke also represented to the District Court that he had hired a 22 Colorado-based company, Financial Integrity, “to help me get all my ducks in a

23 143 Doc. 68, Exs. 12, 13, 15. 144 Doc. 48. 24 145 Doc. 48-1. 146 Id. 25 147 Id. 148 Id. 26 149 Id. Ms. Fink could not prepare Action Security’s corporate income tax returns since she had no data on the business’s income. Feb 24. Tr. at 111:2-112:5. Nor could she prepare the employment and unemployment tax returns that came due after the first quarter of 2022. 27 Id. at 108:2–111:16. 150 Doc. 55. 28 151 November 30, 2022 Hearing Transcript 2:21–3:17 (hereinafter “Nov. 30 Tr.”) 1 row”152 and that he planned to bring on an accountant for the same reason.153 The

2 District Court granted Mr. Henke a one-time continuance but cautioned, “‘I’m not

3 feeling well,’ isn’t going to work another time.”154 The Court also again admonished

4 Mr. Henke to start communicating with Ms. Fink “a lot.”155 Mr. Henke agreed to do

5 so.156 6 Mr. Henke did not follow through on his representation to the District Court. 7 A series of emails from Ms. Barr to Mr. Henke between December 7, 2022, and 8 January 17, 2023, went unanswered.157 Ms. Barr left phone messages with Mr. Henke 9 on December 14, 2022, and January 17, 2023, that went unreturned.158 She left a last 10 phone message with Mr. Henke’s mother in mid-February 2023 requesting the 11 authentication code for the Square login so that she could “update the financial 12 information.”159 Mr. Henke did not return that message.160 13 Ms. Fink filed her third status report on March 23, 2022. In that report, Ms. 14 Fink repeated what she had previously told the District Court about Mr. Henke’s 15 failure to work with her. Specifically, Ms. Fink stated that Mr. Henke continued to 16 withhold information, reform his business, follow directions, or otherwise work 17 with Ms. Fink or Ms. Barr.161 Ms. Fink stated that her office had had no out-of-court 18 correspondence with Mr. Henke since August 2022.162 Because of Mr. Henke’s 19 refusal to work with her or Ms. Barr, Ms. Fink gave her notice of resignation from 20 the receivership, effective April 21, 2023.163 21 III. APPLICABLE LAW 22 Internal Revenue Code § 7402 grants district court’s jurisdiction “to make

23 152 Id. at 5:8–17. 153 Id. at 5:16–17. 24 154 Id. at 9:14–15. 155 Id. at 8:25–9:19. 25 156 Id. at 9:20–21. 157 Doc. 68, Exs. 17-20; see generally Feb. 28 Tr. at 190-198. 26 158 Doc. 68, Ex. 20; Feb. 28 Tr. at 197:7-13. 159 Feb. 28 Tr. at 205:5-10. 160 Id. at 205:12-13. 27 161 Doc. 73. 162 Doc. 73-1. 28 163 Id. 1 and issue in civil actions, writs and orders of injunction, and of ne exeat republica,

2 orders appointing receivers, and such other orders and processes, and to render such

3 judgments and decrees as may be necessary or appropriate for the enforcement of

4 the internal revenue laws.”164 Section 7402(a) “was intended to provide the district

5 courts with a full range of powerful tools t o ensure the enforcement of both the spirit 6 and the letter of the internal revenue laws.”165 The statute “has been construed 7 broadly, to allow courts the full panoply of remedies necessary to effectuate the 8 enforcement of federal tax laws.”166 9 The Ninth Circuit has held that “[t]he standard requirements for equitable 10 relief need not be satisfied when an injunction is sought to prevent the violation of 11 a federal statute which specifically provides for injunctive relief.”167 Because 12 § 7402(a) grants the court injunctive power, it is likely that the government need 13 only show that an injunction is appropriate for the enforcement of the internal 14 revenue laws, without reference to the traditional equitable factors.168 Courts that 15 have taken this approach have held that injunctive relief is appropriate if the 16 defendant is reasonably likely to violate the federal tax laws again.169 In similar 17 contexts, the Ninth Circuit has instructed courts “predicting the likelihood of future 18 violations[] to assess the totality of the circumstances surrounding the defendant 19 and his violations.”170 20 Because neither the Supreme Court nor the Ninth Circuit Court of Appeals has 21 provided express guidance regarding the standard applied to requests

22 164 26 U.S.C. § 7402(a). 165 United States v. Raymond, 78 F. Supp. 2d 856, 877 (E.D. Wis. 1999). 23 166 United States v. Bartle, No. IP01–0768, 2002 WL 75437, at *4 (S.D. Ind. Jan. 16, 2002). 167 Trailer Train Co. v. State Bd. of Equalization, 697 F.2d 860, 869 (9th Cir. 1983). 24 168 United States v. Stoll, No. Civ. C05–0262, 2005 WL 1763617, at *8 (W.D. Wash. June 27, 2005) (citing In re Dow Corning Corp., 280 F.3d 648, 658 (6th Cir. 2002) (holding, in a 25 bankruptcy case, that where a statute, such as IRC § 7402(a), grants the court injunctive power, the court is not “confined to traditional equity jurisprudence”)). 26 169 See United States v. Harkins, 355 F. Supp. 2d 1175, 1180 (D. Or. 2004) (citing United States v. Kaun, 827 F.2d 1144, 1150 (7th Cir. 1987)). 170 See SEC v. Murphy, 626 F.2d 633, 655 (9th Cir. 1980); see also La Quinta Worldwide, LLC 27 v. Q.R.T.M., S.A. de C.V., 762 F.3d 867, 880 (9th Cir. 2014) (“It is important to consider the totality of circumstances bearing on whether a permanent injunction is appropriate 28 equitable relief.”). 1 for injunctive relief pursuant to § 7402(a), however, other courts have analyzed

2 such requests under the equitable factors traditionally applied to a request for a

3 permanent injunction.171 These factors are: (1) the likelihood of substantial and

4 immediate irreparable injury; (2) the inadequacy of remedies at law; (3) actual

5 success on the merits of a claim; (4) the b alance of hardships between the plaintiff 6 and defendant; and (5) the public interest.172 When the government is a party, the 7 balance of hardships and public interest factors merge.173 8 Out of an abundance of caution, the Court evaluates the appropriateness of a 9 permanent injunction under both standards. 10 IV. ANALYSIS

11 a. The Court Finds the Government’s Evidence and Witnesses to Be Credible and Does Not Find Mr. Henke to Be a Credible Witness. 12 13 In making its findings, the Court has considered the evidence in the record, 14 including the sworn declarations filed in conjunction with this motion and others, 15 as well as the sworn testimony and exhibits submitted during the evidentiary 16 hearing. The Court finds the government’s witnesses’ statements and declarations, 17 given under penalty of perjury and supported by admissible evidence, to be credible. 18 The Court does not find Mr. Henke to be credible and has discounted his 19 evidence and testimony accordingly. Mr. Henke failed to abide by the clear mandates 20 of the Stipulated Injunction despite his agreement to do so. He failed to heed the 21 District Court’s warnings as to what might happen were he not to work with the 22 Receiver despite his claim that he understood the Court’s admonition. And most 23 171 See, e.g., United States v. China China Inc., No. C 11–2065 SC, 2011 WL 4404941, at *4–7 24 (N.D. Cal. Aug. 31, 2011) (noting lack of clarity regarding proper standard and analyzing motion for default judgment seeking injunctive relief under the standard set forth in 26 25 U.S.C. § 7402(a) and under traditional equitable principles), adopted by, 2011 WL 4404154 (N.D.Cal. Sept. 21, 2011). U.S. v. Merritt, 2011 WL 5026074, at *6 (E.D.Cal., 2011). 26 172 eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 391 (2006); Amoco Prod. Co. v. Village of Gambell, 480 U.S. 531, 546 n.12 (1987) (“The standard for a preliminary injunction is essentially the same as for a permanent injunction with the exception that the plaintiff must 27 show a likelihood of success on the merits rather than actual success.”). 173 Drakes Bay Oyster Co. v. Jewell, 747 F.3d 1073, 1092 (9th Cir. 2014) (citing Nken v. Holder, 28 556 U.S. 418, 435 (2009)). 1 importantly, throughout the course of this litigation he has made statements – both

2 unsworn and sworn – to the District Court, this Court, the IRS, and others that are

3 simply inconsistent with the facts.

4 For instance, at the Court’s November 30, 2022 Status Conference, Mr. Henke

5 informed the Court that he had met with Ms. Barr and that he had “made all of the 6 payments” and “done everything [he] possibly could.”174 However, for the first 7 quarter of 2022, Mr. Henke paid only $343.74 of the required $4,757.18 owed in 8 employment taxes.175 Moreover, at that point in time, Mr. Henke had not provided 9 passwords to Ms. Fink to permit her to access his accounts or to use those accounts 10 to pay taxes owed, had not prepared an inventory, had not responded to Ms. Fink or 11 Ms. Barr’s requests for pertinent financial information, and had avoided meeting and 12 communicating with Ms. Fink and Ms. Barr.176 Each of these actions was required 13 under the Stipulated Injunction and Appointment Order. 14 Mr. Henke’s false statements about his cooperation with Ms. Fink and Ms. Barr 15 continued at the evidentiary hearing. Mr. Henke testified under oath that he had 16 timely provided Ms. Fink and Ms. Barr everything they had requested except for the 17 “alarm code and a key to the front door.”177 As explained above, this statement is 18 false.178 19 20

21 174 Nov. 30 Tr. at 4:7-8. 175 Doc. 40-1. This payment would have been due April 30, 2022, only six months prior to the Court’s Status Conference. 22 176 See, e.g., Feb 28 Tr. at 178:20-179:1 (Testimony from Ms. Barr that Mr. Henke never provided Ms. Fink with a key or building alarm code for the Action Security location); see 23 also id. at 116:17-22 (Testimony from Ms. Fink that she did not have keys or alarm access); id. at 105:24-25 (testimony from Ms. Fink that “[t]o this day, there is still no inventory[.]”); 24 id. at 108:13-109:1, 116:17-22, 187:7-188:16 (Testimony from Ms. Fink and Ms. Barr detailing how Mr. Henke stopped providing Ms. Fink with the dual-factor authentication code login 25 needed to access Square account); see also Status Reports at Docs 39-1, 48-1, and 73-1; Doc. 68, Exs. 17-20 (emails from Ms. Barr to Mr. Henke attempting to obtain information); Doc. 26 48-1 (status report by Ms. Fink describing difficulties communicating with Mr. Henke and failures by Mr. Henke to provide QuickBooks account access, copies of incoming and outgoing mail, daily accounting of Action Security’s revenue and expenditures, or a business 27 inventory). 177 Feb. 28 Tr. at 23:7-8. 28 178 See supra notes 114, 133-142. 1 Mr. Henke claimed that one of the reasons for his failure to provide

2 information to Ms. Fink and Ms. Barr as required under the receivership order was

3 because, despite being “available seven days a week,” Ms. Fink and Ms. Barr had

4 “not reached out to [him] at all saying anything that they need[ed] from [him].”179

5 However, this claim by Mr. Henke attem pting to place blame on Ms. Fink and Ms. 6 Barr for not communicating with him is not supported by the record. The credible 7 testimony from Ms. Fink and Ms. Barr, supported by multiple government exhibits, 8 was that they attempted to contact Mr. Henke through both phone and email (and 9 were occasionally successful) and requested specific items from him on multiple 10 occasions.180 11 In addition to the government’s evidence, Mr. Henke’s own testimony and 12 exhibits undermine his claim about being available and not being told what was 13 needed. In one text message with Ms. Fink following his June 9, 2022 meeting, Mr. 14 Henke wrote that “his homework is done,” a clear indication to this Court that he 15 had in fact been given a list of tasks to be completed.181 Contemporaneous 16 statements recorded by Ms. Barr and contained in emails sent to Mr. Henke show 17 that Mr. Henke was provided with lists of tasks to complete and acknowledged those 18 tasks.182 When asked about communications with Ms. Barr, Mr. Henke admitted that 19 she had “reached out to [him]” and that “[s]he’s emailed [him].”183 20 The facts similarly do not support Mr. Henke’s testimony concerning his entry 21 into the Stipulated Injunction. Mr. Henke testified that he signed the injunction 22 under some duress after being “very intimidated” by an IRS agent who showed up at 23 his door unannounced and said, “sign this.”184 He also testified that he did not have 24 25 179 Id. at 30:19-20. 26 180 See supra note 176. 181 Doc. 68, Ex. D. 182 See id., Ex. 9 (“Scott, these are the items we discussed earlier this morning in our phone 27 conversation…”). 183 Feb. 28 Tr. at 22:16-25. 28 184 Mar. 1 Tr. at 80:1-3. 1 a “clue what [the stipulation] was.”185 This testimony is undermined by the

2 considerable back-and-forth between Mr. Henke and the IRS regarding the proposed

3 stipulation and Mr. Henke’s own email containing his signature on the stipulation.

4 The IRS sent Mr. Henke a letter and proposed stipulation on September 3,

5 2019. Mr. Henke wrote back that he wa s “interested in resolving this issue and 6 signing the injunction with a few changes.”186 He then went on to detail several 7 specific changes to the proposed injunction that he wanted to see, including the dates 8 on which payments were to be made, changes to the time period for inspection of 9 books, and the lifting of liens that had been placed on Action Security.187 The IRS 10 agreed to some changes and sent a modified proposed injunction back to Mr. Henke 11 on September 10, 2019.188 On September 12, 2019, Mr. Henke replied with additional 12 proposed changes, referencing specific line items he was seeking to renegotiate.189 13 The IRS again agreed to some of Mr. Henke’s proposed changes and sent him a third 14 draft of the proposed injunction that same day.190 When the IRS had not heard back 15 from Mr. Henke by September 16, it emailed again asking for an update. Mr. Henke 16 replied several hours later saying that he had been working in a location in Alaska 17 without cell service and that he would try to review the proposed injunction “later 18 today” or “tomorrow.”191 He then signed the proposed stipulation and sent via email 19 a photo of his signature on September 19, 2019.192 20 The record makes clear that Mr. Henke was clearly well-informed about the 21 contents of the proposed injunction he signed, and that nothing about his contacts 22 with the IRS could be considered intimidating. Mr. Henke had versions of each draft 23 of the proposed injunction for several days. He appears to have used that time to 24

25 185 Id. at 80:9-10. 186 Doc. 16-1 at 7. 26 187 Id. 188 Id. at 6. 189 Id. at 5. 27 190 Id. at 4-5. 191 Id. at 4. 28 192 Doc. 68, Ex. 22 at 1. 1 review the proposed injunction because he made multiple requests for specific

2 changes to the document. He then sent an email containing a photograph of his

3 signature on the stipulation’s signature page. It is not credible for Mr. Henke to

4 testify under oath that he didn’t have a “clue” what was in the stipulation or that he

5 was somehow forced into signing it. 6 Mr. Henke has also hedged and been inconsistent about other aspects of his 7 case, further undermining his credibility. To convey the financial straits he found 8 himself in following his divorce, Mr. Henke repeatedly highlighted the measures he 9 took to downsize his business and the short time frame he had to accomplish those 10 actions. However, on each occasion, the size of his inventory, the amount of time to 11 accomplish the move, and the space into which he moved all materially varied.193 12 Mr. Henke also failed to provide consistent information about his purported 13 retention of various professionals to assist him in this matter. Of greatest concern 14 was Mr. Henke’s statement to the District Court in November 2022 that he had in 15 fact retained a financial services firm to assist him.194 Mr. Henke subsequently told 16 Ms. Barr195 and testified before this Court196 that he had hired or was in the process 17 193 Compare Mar. 1 Tr. at 6:5-6 (“I moved 30,000 feet into 2,300 feet”) with Feb. 1. Tr. at 18 36:16-20 (“I put 50,000 feet in 2,800 feet of locations” and “I’m sitting in a 2,200 square- foot place with 30,000 feet of inventory”) with Feb. 1 Tr. at 164:3-5 (“Did I also tell you, I 19 had to move my company, in less than 20 days, from 18,000 feet into 2,300 feet” with Doc. 43 at 1 (“Action moved 30000 square feet of inventory, vehicle, equipment and furniture into 2700 square feet in less than 10 days.”). 20 194 Nov 30 Tr. at 5:10-6:11 (statement by Mr. Henke to the District Court that he had “hired [Financial Integrity] to try and get [him] back in line” and further description of 21 communications with three possible lawyers). 195 Feb 28 Tr. at 190:19-24 (“Scott, per Judge Holland's instructions, we met in court on 22 Wednesday, November 30, 2022. He requested that you communicate with Lisa. He also asked that you provide her with the contact's name at the financial firm you stated you 23 hired. It has been eight days, and we are notifying you that you have not complied with the judge's orders.”); id. at 197:15-22 (“Scott, I just left a voicemail message for you at 3:14 p.m. 24 on your cell, 907-227-2911. I've sent you two emails, December 7th and 14th, and left a voicemail message for you on December 14th, and I have not heard back from you. Judge 25 Holland instructed you to communicate with Lisa and provide her with a contact name at the financial firm you hired. Neither Lisa nor I have heard from you or your new financial firm.”). 26 196 See Mar. 1 Tr. at 73-98 (Discussion of different individual attorneys, financial firms, IRS agents, and payments); id. at 22:4-22. (“I'm in the process of hiring a company called Focus 27 Financial, which is a local company that writes checks that will handle all my 941s, all my payroll, all my taxes, and complete everything that is taking time away from me servicing 28 1 of hiring professional assistance to help him resolve his tax problems. However, the

2 record does not contain any evidence of the hiring of any financial services firms

3 until May 16, 2023.197 Yet even when Mr. Henke provided this evidence, he

4 simultaneously represented to the Court that he was still seeking to “obtain a

5 company to assist [him] in resolving [ his] debts.”198 Mr. Henke’s statements 6 regarding his attempts to retain legal counsel were similarly contradictory and 7 unsupported by documentary evidence.199 8 In addition, while attempting to explain his failure to communicate with Ms. 9 Fink and Ms. Barr following the November 30, 2022 Status Conference, Mr. Henke 10 provided multiple shifting justifications, none of which satisfactorily explained his 11 failure to comply with the District Court’s direct admonition to him that he start 12 communicating with Ms. Fink “a lot.”200 As it related to email communications, Mr. 13 Henke first claimed that he did not receive emails sent by Ms. Barr because they 14 were sent to the email “shenke@actionsecurity,” an email account he was “not 15 our customers. I've got a company called Phoenix that is wanting to do a retroactive filing for a program called ERC, which is employment retention credit, to where credits are given 16 for our entire 2020 and 2021 payroll. And this is a program that's being given out by the United States of America, and they are willing to work with me on that. I have communicated 17 to a number of companies that said that the receivership is not your friend. These are professional companies that do these jobs. They have looked at the documentation and was 18 trying to see if they could contact the IRS to take it over. And due to the fact that it's in court, they were not able to do it, but they were very willing and said that they could handle this 19 and gets my books in line and get back in line with the IRS.”). 197 Mr. Henke provided a letter dated May 16, 2023, stating that “Integrity Financial 20 Associates (“IFA”) has been contracted by Action Security, Inc. to help resolve their federal tax issues.” Doc. 88-1. 21 198 Doc. 88 at 1. 199 Mr. Henke repeatedly asserted that he had hired or was attempting to hire an attorney to help him resolve his tax problems. None of those attempts bore fruit, though, and the record 22 does not contain any documentary evidence to support Mr. Henke’s statements that he had spent over $10,000 attempting to hire various attorneys. See Doc. 16-1 at 7 (2019 email from 23 Mr. Henke to the IRS stating that he had “spoken with a number of attorneys and [hadn’t decided if he could] afford to proceed forward with their help”); Feb. 28 Tr. at 7:20-8:8 24 (“Your Honor, I tried to obtain representation for two months. I hired a company, paid $5,000 to them, and less than two weeks ago, they told me they couldn't represent me 25 because the case was in court. I then proceeded to find another attorney that I gave money -- $5,000 to as well, and he told me that he couldn't represent me because of where it was 26 at in the court session. I went to the Anchorage Bar Association, the Alaska Bar Association, everywhere, trying to find someone to represent me, and I think that you're aware that there's a shortage of attorneys. All of the attorneys that were practicing this type of stuff 27 have quit or are not back practicing at this point in time or overloaded with cases. So I am by myself at this point in time.”). 28 200 Nov. 30 Tr. at 8:25–9:19. 1 checking at [the] time.”201 When informed by the Court that some of the emails were

2 sent to the account that he testified he was regularly using,

3 “dispatch@actionsecurity,” Mr. Henke pivoted and said that he was out of the office

4 during that time, bedridden with COVID.202 Mr. Henke then admitted that he

5 “obviously” had spoken to Ms. Barr abo ut the contents of those emails, thereby 6 admitting that he had received and reviewed them, but added that “if” they had 7 spoken, he was not “100 percent coherent at the time” because he was “under the 8 weather.”203 He then added that his failure to respond and cooperate was the result 9 of legal advice he had been given.204 10 Mr. Henke told a similar story when it came to attempts by Ms. Barr to speak 11 to him. Mr. Henke said that he had not received any of the calls Ms. Barr had left 12 following the November 30 Status Conference, but then conceded that Ms. Barr had 13 “left messages.”205 Mr. Henke did not have an answer for why he failed to respond 14 to those calls.206 15 This record leaves the Court with a firm conviction that Mr. Henke’s testimony 16 regarding his actions in this matter is simply not credible. Mr. Henke has failed to 17 abide by his promises and representations to the District Court, has repeated false 18 statements about his interaction with the Receiver, and has been inconsistent as to 19 other material matters in this case. Accordingly, the Court places little to no weight 20 in the testimony of Mr. Henke at the evidentiary hearing or in the supporting 21 documentation provided by him during this litigation.

22 201 Mar. 1 Tr. at 47:18-20. 23 202 Id. at 69:3-9, 69:17-22. The Court notes that Mr. Henke communicated with the IRS in 2019 about the stipulated injunction using his shenke@actionsecurity email account. 24 However, when asked about why he did not respond to Ms. Barr’s emails in August and November 2022, Mr. Henke testified that he did not recall seeing any of them because it was 25 sent to the “shenke” account, which he does not regularly check “due to the fact that [he’s] never at his desk anymore.” Id. at 67:19-24. Mr. Henke testified that the account he was 26 primarily using in 2022 was dispatch@actionsecurity, and that it was the one he was “most likely to receive emails at.” Id. at 68:12-14. 203 Id. at 69:17-22. 27 204 Id. at 47:23-48:2. 205 Id. at 48:7-16. 28 206 Id. at 48:21-22. 1 b. Plaintiff Has Met the Standard for Granting a Permanent Injunction. 2

3 Plaintiff has provided sufficient evidence showing that a permanent

4 injunction is warranted. Plaintiff has shown that a permanent injunction is

5 appropriate for the enforcement of the int ernal revenue laws, and that a permanent 6 injunction is warranted based on the traditional equitable factors. 7 In determining the appropriateness of a permanent injunction for the 8 enforcement of the internal revenue laws, the Court considers the totality of the 9 circumstances, including the following factors: (1) the gravity of harm caused by the 10 offense; (2) the extent of the defendant’s participation, and his degree of scienter; 11 (3) the isolated or recurrent nature of the infraction and the likelihood that the 12 defendant’s customary business activities might again involve him in such 13 transaction; (4) the defendant’s recognition of his own culpability; and (5) the 14 sincerity of his assurances against future violations.207 As detailed herein, the Court 15 finds that each of these factors weighs strongly in Plaintiff’s favor.

16 i. The Gravity of the Harm Caused by Defendants’ Violation of the District Court’s Order Is Significant. 17 18 The first factor the Court considered is the harm caused by Defendants’ 19 conduct. Defendants have failed to pay nearly all their unemployment, employment, 20 and corporate taxes since 2014.208 As a result, according to the IRS, Action Security 21 owes $1,896,140.97 to the United States in unpaid taxes.209 Defendants’ continued 22 refusal to comply with the Court’s orders has caused that figure to balloon to 23 $4,467,738.53 when accounting for penalties and interests,210 and that debt appears 24 to be growing unabated. 25 26 207 Harkins, 355 F. Supp. 2d at 1181 (citing United States v. Raymond, 228 F.3d 804, 813 (7th Cir. 2000)); Murphy, 626 F.2d at 655. 27 208 Doc. 87 at 9. 209 Doc. 68, Ex. 5. 28 210 Doc. 45 at 2-3. 1 The Court notes that Mr. Henke confidently maintained during the evidentiary

2 hearing that he could pay off his debt and rebound his company. Mr. Henke testified

3 that “customers are coming back”211 and that he can “pretty much” earn whatever it

4 takes to square his debts.212 However, Mr. Henke admitted that he had no strategy

5 to pay off what he owed, much less the ad ditional taxes that may have accrued since 6 the commencement of this proceeding.213 7 Moreover, Mr. Henke’s confidence flies in the face of the record in this case. 8 Defendants have consistently failed to pay their required employment, 9 unemployment, and income taxes since 2014. This failure to pay accruing taxes or 10 to attempt to make good on amounts past due exists even though Mr. Henke claimed 11 that business was increasing following the COVID-19 pandemic with the return of 12 customers, a portfolio of statewide clients, large corporate clients who he claims 13 generate revenues of “40 to 50 thousand dollars” per year, and new “lucrative” 14 revenue streams creating “automotive keys to the tune of $300 to make a key.”214 15 However, according to Ms. Fink, in actuality Action Security was “insolvent…because 16 it’s not making enough money to support anybody.”215 17 Mr. Henke’s only evidence of future financial solvency and ability to pay his 18 taxes was a spreadsheet showing that credit card receipts from January 1, 2023, to 19 February 28, 2023, were 33.5% higher in 2023 than in 2022.216 That may be so. 20 However, as Plaintiff pointed out, it fails to prove the business grew more profitable 21 in 2023 and does not account for inflation nor does it prove that total revenue 22 increased. Further, the data compares only the first two months of 2023 to the entire 23

24 211 Mar. 1 Tr. at 28:24, 25:21-22. 212 Id. at 27:1-7; see also id. at 56:7-9 (“And I’m telling you I’m on target, and I told you that 25 when we first spoke, is that I am bound and determined to pay back everything I owe.”). 213 Id. at 45:1–4. 26 214 Id. at 62:2-63:6. 215 Feb. 28 Tr. at 122:10-12. During the time that Ms. Fink has access to Action Security’s finances, she observed that it made a profit of $23,000, but that Mr. Henke had personal 27 expenses of $26,000, putting him in a $3,000 hole. Id. at 122:4-7. As a result, Mr. Henke had multiple overdrawn checks from his Wells Fargo account. Id. at 106:14-17. 28 216 Doc. 68, Ex. G. 1 previous year. This brief snapshot of revenue into one account is of limited value to

2 the Court and is overcome by the bleak financial picture for Action Security painted

3 by the evidence in this case. The first factor, therefore, weighs in Plaintiff’s favor.

4 ii. The Defendant Is Aware of His Obligations Under the Law and Has Willfully Violated the Court’s Order. 5 6 The second factor the Court considers is the extent of Defendants’ 7 participation and their degree of scienter. Mr. Henke is the sole owner and operator 8 of Action Security, and thus any failure to file or pay taxes for nine years is a direct 9 result of his inaction. The Court finds Mr. Henke was intimately aware of his 10 violations and understood he was conducting his business in violation of IRS tax laws 11 and warnings. 12 As detailed above, the IRS has attempted since 2016 to bring Defendants into 13 tax compliance via myriad efforts. Mr. Henke agreed to the Stipulated Injunction 14 directing his compliance in 2019. The District Court found Mr. Henke in contempt 15 in 2021 and appointed a receiver to bring him into compliance. In November 2022, 16 the District Court admonished Mr. Henke to work with the Receiver. And at the 17 evidentiary hearing, Mr. Henke admitted to not paying his taxes or complying with 18 the Stipulated Injunction because he prioritized paying creditors first.217 The second 19 factor thus weighs in favor of Plaintiff.

20 iii. Defendants Are Likely to Continue to Break the Law and Violate the District Court’s Order. 21 22 The third factor involves the frequency of the infraction, i.e., whether it was 23 isolated or is recurrent in nature, and the likelihood that Defendants will continue 24 to violate the tax laws and the Stipulated Injunction. The frequency of the 25 Defendants’ failure to file or pay taxes has persisted for nine years, making it highly 26 recurrent in nature. Given the prolonged, consistent duration of tax avoidance, and 27 Mr. Henke’s willingness to continue to avoid paying taxes during the pendency of

28 217 Feb. 28 Tr. at 19:2-7; see also Mar. 1 Tr. at 55:16-56:6. 1 this action, it appears inevitable that Defendants will fail to meet their tax

2 obligations if allowed to continue as currently structured, or if Mr. Henke is allowed

3 to assume a role in another organization with responsibility for tax compliance.

4 Since the outset of this case, Mr. Henke has steadfastly refused to take any

5 significant action that would demonstrate to the Court that he has a genuine desire 6 to bring Action Security into tax compliance. For example, starting in 2016, the IRS 7 attempted to advise him on how to follow the tax code. To this end, RO Johnson 8 communicated with Mr. Henke in person, through letters, and telephonically about 9 what Defendants needed to do to comply with the relevant tax laws.218 Mr. Henke 10 did not comply with RO Johnson’s instructions.219 11 Mr. Henke’s failure to work with RO Johnson ultimately led to referral of his 12 case for civil injunction.220 As detailed above, Mr. Henke failed to follow through on 13 his obligations under the Stipulated Injunction. That failure led to the appointment 14 of a receiver, Ms. Fink, and an order to cooperate. Mr. Henke failed to comply with 15 that order. 16 Despite his repeated statements that he wished to resolve this matter, Mr. 17 Henke appeared unable to take basic steps to bring Action Security’s affairs in order. 18 Mr. Henke disregarded essentially all of Ms. Fink’s assignments: He did not give her 19 a summary of his inventory,221 a daily sales report,222 remote access to 20 QuickBooks,223 consistent access to his Square account,224 keys to his shop,225 or a 21 list of his invoices and debts.226 As of the date of the final Status Report from Ms. 22 Fink, he still had not accomplished any of these tasks.227 Mr. Henke’s actions, or lack

23 218 Feb. 28 Tr. at 43:6-15. 219 Id. at 43:16-20. 24 220 Id. at 43:21-24. 221 Id. at 116:11–15. 25 222 Id. at 179:11-17. 223 Id. at 109:5–18. 26 224 Id. at 108:12-109:1, 116:18, 120:2-8. 225 Id. at 116:17. 226 Id. at 116:23–117:6. 27 227 Doc. 73-1; see also supra notes 174-176 and accompanying text. Mr. Henke provided brief access to his Square account but failed to respond to requests from Ms. Fink or Ms. Barr for 28 additional information needed to maintain that access. 1 thereof, confirm Ms. Fink’s conclusion that Mr. Henke was “horrible”228 at

2 communicating and that the receivership was impossible.229

3 Even when Ms. Fink was able to accomplish anything of substance on Mr.

4 Henke’s behalf, Mr. Henke failed to follow through with his legal obligations. During

5 his initial period of cooperation with Ms . Fink, Mr. Henke gave her access to his 6 QuickBooks, allowing Ms. Fink to prepare Defendants’ Forms 940 and 941 through 7 the first quarter of 2020. Despite this, Mr. Henke paid less than 10% of the first 8 quarter employment taxes due on March 1, 2022.230 9 Even the District Court’s admonishment at the November 30 Status 10 Conference that it “expect[ed] there to be a lot of communication Mr. Henke, 11 between you and Ms. Fink” failed to spur Mr. Henke into action.231 The District Court 12 plainly told Mr. Henke:

13 THE COURT: You have got to inform her as to what you’re doing. You have got to put her in touch with the people that you say you’re working 14 with, because at this point, quite frankly, I’m suspicious as to whether you really have a viable operation going. You’re talking about getting 15 investors, and, sir, I’m afraid that’s a pipe dream, but if it’s real, you have got to be communicating what’s going on to the receiver. 16 MR. HENKE: Okay. 17 Tellingly, neither Ms. Fink nor Ms. Barr have had any out-of-court contact with Mr. 18 Henke since the District Court’s advisement despite repeated emails and phone 19 messages.232 20 Indeed, it appears as if some of the steps taken – or not taken – by Mr. Henke 21 were taken with the express purpose of frustrating the work of the Receiver. 22 Immediately after her appointment, Ms. Fink was able to meet with Mr. Henke and 23 gain access to his Wells Fargo account, the account from which he told her that he 24 paid his rent and wages. But prior to gaining that access, and shortly after Ms. Fink’s 25 26 228 Feb. 28 Tr. at 113:25. 229 Doc. 48-1. 27 230 Doc. 39-1 at 1. 231 Nov. 30 Tr. at 8:25-9:2. 28 232 Doc. 68, Exs.17-20; see also Feb. 28 Tr. at 116:6-10. 1 appointment, Mr. Henke withdrew a significant amount of money from the account

2 and failed to provide Ms. Fink with documentation supporting Mr. Henke’s

3 insistence that the withdrawals were to pay vendors.233 To date, no such

4 documentation has been provided.234

5 Mr. Henke then kept the balance in the Wells Fargo account low to protect it 6 from “people coming in and taking money out of [the] account,”235 and appeared to 7 shift most financial activity to the Square account, from which Mr. Henke could deny 8 access to Ms. Fink by failing to provide her with the two-factor authentication code 9 needed to remotely access that account.236 The result of Mr. Henke’s actions 10 following the appointment of the Receiver was to drain and then starve the Wells 11 Fargo account, the only account from which Ms. Fink could pay taxes owed by Mr. 12 Henke and Action Security, thereby denying her the ability to perform a key 13 component of her role as Receiver. 14 Mr. Henke also denied Ms. Fink access to his business. Curiously, Mr. Henke, 15 a locksmith by trade, was never able to provide Ms. Fink with a key to his property, 16 and claimed that he could not provide Ms. Fink with the alarm code for his security 17 system because he had “not been able to figure out how to change the alarm code.”237 18 And Mr. Henke’s repeated assertions that he was available any time to meet with 19 Ms. Fink or Ms. Barr are undermined by the frequency with which he cancelled 20

21 233 Feb. 28 Tr. at 106:13-107:5; see also id. at 157:13-21 (Testimony by Ms. Fink that this withdrawal suggested that Mr. Henke was “taking money out of the account real quick before a receiver comes in.”). 22 234 Mar. 1 Tr. at 8:2-6; see also Doc. 68. Exs. B, C. At the evidentiary hearing, Mr. Henke produced records showing a similar $7,000 withdrawal two months after Ms. Fink’s 23 appointment, and testified that this withdrawal was made in order to pay a vendor. Mr. Henke’s credibility on this issue is undermined by his ability to selectively produce 24 documentation only for those issues that appear to inure in his favor, while withholding production for those that might undermine it. See supra notes 194-199 and accompanying 25 text. Moreover, even if the questioned withdrawals were for the purchase of inventory, they would violate the injunction, which prohibited Mr. Henke from paying any commercial bills 26 prior to his federal taxes. Doc. 38. 235 Mar. 1 Tr. at 54:9-12. 236 See, e.g., Feb. 28 Tr. at 108:12-109:1, 116:17-22, 187:7-188:16 (Testimony from Ms. Fink 27 and Ms. Barr detailing how Mr. Henke stopped providing Ms. Fink with the dual-factor authentication code login needed to access Square account). 28 237 Id. at 23:8-9. 1 meetings, missed phone calls claiming he was unavailable due to working in remote

2 parts of the state, or simply did not respond to email and voice message requests to

3 communicate.

4 Mr. Henke repeatedly claimed at the evidentiary hearing that he was working

5 tirelessly to keep his business afloat.238 In Mr. Henke’s view, it was more important 6 to him to do business than it was to comply with the injunction. However, nothing 7 precluded Mr. Henke from doing both, and indeed, much of what Ms. Fink and Ms. 8 Barr completed on Mr. Henke’s behalf and were prepared to undertake going 9 forward – the filing of required paperwork, the implementation of accounting and 10 inventory systems – would have freed Mr. Henke to run his business more efficiently. 11 In the Court’s view, the steps Mr. Henke took to frustrate Ms. Fink were the result 12 of his unwillingness, rather than an inability, to get her what she needed. 13 The only step that Mr. Henke appears to have taken to address his tax 14 compliance issues was to hire at the 11th hour a financial firm. However, the Court 15 is not swayed by this effort. Mr. Henke told the IRS and District Court multiple times 16 during this litigation that he either did, or intended to, hire an outside firm to assist 17 him with his tax issues.239 However, it is only when faced with the imminent 18 possibility of closure that it appears he might actually have.240 In addition, Mr. 19 Henke has consistently failed to follow the tax laws and the District Court’s orders, 20 even when given multiple opportunities to work with Plaintiff and the resources of 21 a qualified receiver. This abysmal track record gives the Court no confidence that 22 Mr. Henke intends to follow through with his retained financial services firm in such 23 a way that will result in his compliance with the tax laws and will allow him to 24 address his debt to the United States. 25 Mr. Henke testified at the evidentiary hearing on this motion that he “was 26 trying to comply [with the injunction] and move on with [his] life so he can get [his

27 238 Id. at 35:1-5; Mar. 1. Tr. at 6:17, 7:6, 29:2, 49:8-14, 56:1-6. 239 Mar. 1 Tr. at 22:1-14; Nov. 30 Tr. at 5:10-25, 6:1-11. 28 240 Doc. 88-1. 1 tax problems] eliminated.”241 However, his actions belie that testimony. Since the

2 outset of this matter and continuing to this day, Mr. Henke has acted in ways that

3 demonstrate to this Court that Defendants’ primary objective is avoidance of their

4 tax problems, as opposed to their elimination. The Court finds that the third factor

5 weighs heavily in Plaintiff’s favor. 6 iv. Mr. Henke Has Not Acknowledged His Own Culpability. 7 The fourth factor is Defendant’s recognition of his own culpability. While Mr. 8 Henke has expressed in words his willingness to pay his debts and bring his company 9 into tax compliance, his actions belie that intent. The Court has before it little to no 10 evidence of him accepting responsibility for his actions. Rather, Mr. Henke’s 11 statements relating to his failure to pay taxes owed are surrounded by excuses, and 12 he has consistently blamed others – RO Johnson, Ms. Fink, Ms. Barr – for his inability 13 to comply with the law and the orders of the District Court. 14 The most telling demonstration of Mr. Henke’s lack of recognition of his own 15 culpability has been his response to Ms. Fink’s appointment. At the evidentiary 16 hearing, Mr. Henke faulted the District Court for giving “Ms. Fink the receivership 17 without [his] knowledge,”242 despite having been served with a copy of the motion 18 and the District Court’s order appointing Ms. Fink.243 He went on to then assert that 19 despite its obvious impact on his business, and the potential sanctions that could 20 result were he not comply with the District Court’s order, he had not read the 21 Appointment Order244 22 It would seem apparent that anyone facing a significant tax liability would 23 welcome the opportunity to work with a court-appointed receiver to help resolve the 24 matter. The Court will not speculate why Mr. Henke has spurned this opportunity; 25 241 Feb. 28 Tr. at 33:14-15. 26 242 Id. at 6:19-20. 243 Docs. 29, 30. 244 Mar. 1 Tr. at 31:14. According to Mr. Henke’s testimony at the evidentiary hearing, he 27 did not read the Appointment Order when it was served on him and still “still [hadn’t] read it to this day. Okay?” Id. at 15. Mr. Henke made this assertion despite Ms. Fink’s testimony 28 that she reviewed the receivership order with him “line by line.” Feb. 28 Tr. at 98:3-4. 1 however, his hostility toward Ms. Fink, her assistant Ms. Barr, and their collective

2 assistance has been jarring and continues Mr. Henke’s trend of seeking to address

3 his tax problems by attempting to ignore them or blaming others. Mr. Henke claims

4 his hostility toward Ms. Fink was based on her purported faults and inexperience.245

5 However, it is apparent from Ms. Fink’s r esume and experience that she was more 6 than capable of assisting Mr. Henke in this case. 7 At the evidentiary hearing, Mr. Henke sought to cast blame on Ms. Fink, 8 criticizing her for not guiding him sufficiently through the process246 or sending 9 reminders of things he needed to accomplish.247 Only on cross-examination did Mr. 10 Henke concede that Ms. Fink did give him a “list of assignments,” that he had 11 reviewed that list, and that reminders about these actions items were sent to him on 12 multiple occasions.248 Indeed, the record shows that between their initial meeting 13 on May 10, 2022, and the evidentiary hearing in early 2023, Ms. Fink or Ms. Barr 14 met with Mr. Henke or communicated with him through phone, text, or email no 15 fewer than 15 times.249 Among these communications were emails that included a 16 list of 10 specific action items Mr. Henke needed to accomplish.250 The Court is 17 uncertain how much more hand-holding could have been done in this case.251 18 Indeed, Mr. Henke appears to want it both ways. On the one hand, he criticizes 19 Ms. Fink for not “writ[ing] [instructions] down for [him] so [he] could get a punch 20 list done[.]”252 On the other hand, when given specific tasks to get done, he fails to

21 245 Mar. 1 Tr. at 21:15-19 (“She mentioned that she's done 700, blah, blah, blah, or something along those lines, and then it later came up that this is her first receivership. And I believe 22 that it being her first receivership, that Action Security has been a receiver of her lack of experience.”). 23 246 Id. at 79:18 (“I just need my hand held.”). 247 Id. at 20:15-22. 24 248 Id. at 37:15-18 (Question: “You said that she verbally gave you a list of assignments that you needed to do, correct? She told you, here's X, Y and Z, do these things? Answer: She 25 went down the list. Okay?); see also id. at 48:23-25 (“[T]hey sent you, a number of times, a list of things you had to do for them”). 26 249 Doc. 40-1; Feb. 1 Tr. at 97:2-10; Doc. 68, Exs. 9-20. 250 Doc. 68, Exs. 9-11, 13, 15, 17-19. 251 The Court notes that Ms. Fink and Ms. Barr even went so far as to attempt to provide IT 27 help to Mr. Henke when his computer apparently crashed and he was unable to access his QuickBooks, an offer Mr. Henke spurned. Feb. 28 Tr. at 170:22-171:10. 28 252 Mar. 1. Tr. at 40:23-24. 1 follow through on the assignments.

2 Mr. Henke also criticizes Ms. Fink because she only “met with [him for] three

3 to four hours, and then sent a letter to the United States government saying that [he]

4 need[s] to be shut down.”253 In making this claim, Mr. Henke fails to appreciate that,

5 in addition to their in-person meetings, M s. Fink and her firm spent time preparing 6 overdue tax returns based upon information obtained during those initial 7 meetings.254 Furthermore, the record demonstrates that Ms. Fink attempted to work 8 with Mr. Henke to carry out the receivership order, that communications during the 9 summer of 2022 after the initial meeting appeared to be improving,255 and that some 10 progress was made in providing information to the IRS. Moreover, when Ms. Fink’s 11 communications broke down several months into the relationship, Ms. Fink tasked 12 Ms. Barr with attempting “to try to move forward with this case.”256 13 Mr. Henke nevertheless insists that Ms. Fink should have spent more time 14 with him, should have been “in his corner,” and should have “showed up at [his] 15 office and looked [him] in the eye and said, ‘Let’s get busy.’”257 But the record 16 evidence in this case shows that Ms. Fink’s attempts to work with Mr. Henke to 17 resolve his tax problems were reasonable. Even after filing her first status report 18 documenting her issues with Mr. Henke and her conclusion that Mr. Henke’s 19 business was not viable, Ms. Fink agreed to continue working with Mr. Henke 20 following his assurances in August 2022 that he was “willing and needing to resolve 21 this matter as quickly as possible[.]”258 This representation spurred Ms. Barr’s 22 involvement, and her repeated phone calls and emails to Mr. Henke requesting 23 information and access, which largely went unfulfilled.259 24

25 253 Id. at 77:3-7. 254 Feb. 28 Tr. at 107:19–108:8. 26 255 Compare id. at 98:6-9 (“He seemed a little angry, a little upset.”) with Mar. 1 Tr. at 33:2- 13. 256 Feb. 1 Tr. at 114:14-25. 27 257 Mar. 1 Tr. at 77:7-10. 258 Doc. 43 at 3. 28 259 See supra notes 157-160. 1 Even after being ghosted in August 2022, Ms. Barr tried a second time to work

2 with Mr. Henke following the November 30 Status Conference.260 This outreach also

3 went unanswered despite the District Court’s stern admonition to Mr. Henke that he

4 start communicating with Ms. Fink “a lot,” and Mr. Henke’s assurance that he

5 would.261 The Court does not fault Ms. Barr or Ms. Fink for refusing to spend 6 additional time and resources on Mr. Henke’s case given Mr. Henke’s unwillingness 7 to do the simple tasks asked of him, all of which were either directly ordered as part 8 of the District Court’s order appointing the Receiver,262 or clearly consistent with 9 the duties of the Receiver.263 10 All in all, Ms. Fink and Ms. Barr did not, as Mr. Henke claims, sit back and 11 “throw[] darts at [him].”264 Rather, Ms. Fink and Ms. Barr repeatedly attempted to 12 engage with Mr. Henke and fulfill the mandate of the District Court’s receivership 13 order, yet Mr. Henke failed to cooperate. In light of Mr. Henke’s stonewalling, it is 14 understandable that Ms. Fink would ultimately throw her hands up and walk away. 15 The fault is not with Ms. Fink for failing to throw a lifeline to Mr. Henke; the failure 16 is with Mr. Henke for not grabbing that lifeline when it came his way.265 Mr. Henke’s 17 refusal to acknowledge this while continuing to blame Ms. Fink does not indicate any 18

19 260 Mar. 1 Tr. 47:6-22. 261 Nov. 30 Tr. at 9:1-3. 20 262 Compare Doc. 37 at 5 (“The Receiver shall have access and control over Action Security’s records, including…and electronically kept records such as those using QuickBooks.”) with 21 Doc. 68, Exs. 9-13, 15, 17-20 (Emails from Ms. Barr to Ms. Henke requesting access to, among other things, QuickBooks backup, login and password, and access.). 263 Compare Doc. 37 at 12 (“The Receiver may…implement such accounting and control 22 procedures to facilitate the efficient and proper administration of Action Security.”) with Doc. 68, Ex. 9-13, 15, 17-20 (Emails from Ms. Barr to Ms. Henke requesting that an inventory 23 of Action Security’s assets be completed.).

24 265 The Court notes the irony of Mr. Henke’s complaints about Ms. Fink refusing to work with him given that nearly every stage in this case it has been Mr. Henke who has missed 25 deadlines or failed to show for meetings. Mr. Henke failed to answer the Complaint. During Mr. Henke’s communications with the IRS about the stipulated injunction, he failed to 26 respond with proposed edits to the injunction by the time he said he would. RO Johnson testified that Mr. Henke cancelled a meeting at the last minute and failed to follow-up like Mr. Henke said he would. Ms. Fink testified that it took multiple calls over several weeks to 27 set up her initial meeting and follow-up meeting with Mr. Henke. Mr. Barr’s communications with Mr. Henke demonstrate that he consistently failed to respond to her 28 requests for information despite repeated assurances that he would. 1 acceptance of responsibility. Factor four weighs heavily in favor of Plaintiff.

2 v. Defendants Will Not Meet their Legal Obligations Going Forward. 3 Finally, the fifth factor relates to the sincerity of Defendants’ assurances 4 against future violations.266 As detailed above, Mr. Henke has repeatedly assured 5 the IRS, the Receiver, and the District Court that he wanted to resolve this matter 6 and was working diligently toward that end. For instance, in his emails with the IRS 7 in August 2019 prior to the stipulated injunction, Mr. Henke wrote that he “plan[ned] 8 on resolving this issue myself with your office’s help.”267 In his declaration filed 9 August 16, 2022, in response to Ms. Fink’s first status report, Mr. Henke claimed that 10 Action Security’s sales had increased “at the rate of 40%-50%...[a]llowing 11 opportunity to repay IRS debt.”268 At the November 30 Status Hearing, Mr. Henke 12 told the District Court that he was “back on [his] feet again and…able to start getting 13 this resolved.”269 At the evidentiary hearing Mr. Henke testified that he was “on 14 target” and “bound and determined to pay back everything [he owed].”270 Mr. Henke 15 added that he would “continue to do what [he’s] doing so that the company can be 16 profitable and [he] can pay off [his] debt.”271 17 The evidence demonstrates that what Mr. Henke has done since at least 2014 18 is avoid paying his taxes. And since at least 2016, he has failed to work with those 19 who have attempted to help him resolve these issues, despite his representations to 20 the IRS, the District Court, and this Court at every turn that that was his desire. 21 Simply put, there is no evidence in the record of Mr. Henke making any sustained, 22 dedicated attempt to comply with his legal obligations, comply with the obligations 23 in the Stipulated Injunction, or comply with this District Court’s orders and 24 admonitions. And there is nothing to indicate that if given another opportunity, he 25

26 266 Harkins, 355 F. Supp. 2d at 1181. 267 Doc. 16-1 at 7. 268 Id. 27 269 Nov. 30 Tr. at 4:16-17. 270 Mar. 1 Tr. at 56:7-9. 28 271 Id. at 85:1-2. 1 would do so.

2 Mr. Henke’s actions, and in some instances his inactions, speak louder than

3 his words and tell the Court that without stringent sanctions, future tax violations

4 will occur and Defendants will continue to violate the Court’s orders. Without

5 evidence of any significant good faith eff orts by Defendants during the four years 6 since entry of the Stipulated Injunction, the Court struggles to see how any remedy 7 short of shutting down Defendants’ business and enjoining Mr. Henke from engaging 8 in any other businesses that would make him responsible for tax compliance could 9 prevent future loss. “[T]ime and experience” have demonstrated to this Court that 10 the previous injunction was not enough to compel Mr. Henke to bring his company 11 into tax compliance and to stop the pyramiding scheme.272 The District Court has 12 been unable to accomplish its objectives with less stringent sanctions. The fifth 13 factor, therefore, weighs in favor of Plaintiff. 14 In sum, Plaintiff presented evidence demonstrating there is a likelihood of 15 future tax violations by Defendants. Plaintiff estimates that, as of July 10, 2022, 16 Defendants owe the United States Treasury approximately $4,467,738.53, 17 accounting for both the underlying $1,896,140.97 in unpaid taxes and the interest 18 and penalties that have accrued on that sum.273 Because of Defendants’ conduct (or 19 lack thereof), there is no sign this amount will decrease. Plaintiff likewise presented 20 evidence of Defendants’ past conduct of knowingly and continuously acting in a 21 manner that violates federal tax laws, despite the repercussions, offers of assistance 22 by the IRS and the Receiver, and numerous warnings from the IRS and District Court. 23 Plaintiff also presented evidence of Defendants’ persistent and obstinate refusal to 24 comply with both the federal tax laws, and the District Court’s preliminary 25 injunction and receivership order, again despite numerous warnings. Mr. Henke has 26 not acknowledged the illegality of his conduct, nor has he credibly denied any of the 27 272 See United States v. United Shoe Mach. Corp., 391 U.S. 244, 249 (1968). 28 273 Doc. 45 at 2-3; Doc. 68, Ex. 5. 1 factual allegations against him. Plaintiff has therefore shown that a permanent

2 injunction is appropriate for the enforcement of the internal revenue laws.

3 vi. The Equitable Factors Warrant a Permanent Injunction.

4 In addition to showing that a permanent injunction is appropriate for the

5 enforcement of the internal revenue law s, Plaintiff has established each of the 6 factors that would warrant a permanent injunction in equity: (1) substantial 7 irreparable harm; (2) the inadequacy of remedies at law; (3) actual success on the 8 merits; and (4) a balance of equities tipping in Plaintiff’s favor.274 9 First, Plaintiff has shown that Defendants’ activities, if not curbed, will result 10 in substantial irreparable harm through lost revenues and interference with the 11 proper administration of the revenue laws. Second, Defendants’ failure to make any 12 dent in their steadily growing tax debt, and their apparent unwillingness to tackle 13 the problem despite being subject to various court orders, indicate that remedies at 14 law are inadequate to compel Defendants’ compliance with the revenue laws. Third, 15 Plaintiff has demonstrated actual success on the merits. As detailed above, there is 16 abundant evidence in the record of Defendants’ refusal to comply with the revenue 17 laws or to cooperate with the District Court’s orders, or to otherwise reform their 18 business in an attempt to stop pyramiding debt and repay it.275 And fourth, Plaintiff 19 has shown that the balance of hardships tips in its favor. Although the Court 20 recognizes that Plaintiff’s requested relief places a significant burden on Defendants’ 21 freedom of contract,276 Defendants’ own behavior—namely, their repeated violations 22 of the revenue laws and challenges to court orders—has prompted the necessity of a 23 severe sanction. Permanent injunctive relief advances the significant public interest 24 in collecting and recovering tax obligations, or, in this case, imposing appropriate 25 sanctions where Defendants have flagrantly disregarded their duty to address these 26

274 See eBay Inc., 547 U.S. at 391; Amoco Prod. Co., 480 U.S. at 546 n.12; Drakes Bay Oyster 27 Co., 747 F.3d at 1092. 275 See supra sections IV.iii & v. 28 276 See infra Part V.a. 1 obligations.277

2 The Court therefore finds that the traditional equitable factors further

3 establish that Plaintiff is entitled to a permanent injunction.

4 V. SANCTIONS

5 a. The Court Recommends Clo sure of Action Security and Enjoining Mr. Henke from Controlling a Business. 6 7 Having recommended that Defendants be found in contempt, the Court turns 8 to the appropriate remedy. The government seeks a permanent injunction ordering 9 Defendants to cease accepting new clients within 30 days, cease operating within 10 120 days, and placement of a notice of the injunction on Defendants’ store door. The 11 government also requests that this injunction prohibit Mr. Henke from directly or 12 indirectly owning, controlling, managing, operating, or serving as an officer or 13 director of any business until the earlier of (1) his successful petition for relief if 14 certain conditions are met after one year from the injunction, or (2) 10 years. Finally, 15 the government asks that the injunction provide that Defendant be incarcerated for 16 three or more days if he violates its terms.278 17 Mr. Henke requests the appointment of a second receiver and an opportunity 18 to continue operating the business.279 19 The government’s requested remedy is extraordinary. The Court has 20 been able to find only a limited number of cases in which a court not only ordered 21 an individual or entity facing similar issues to dissolve their business operation, but 22 also enjoined any future operations.280 Indeed, such an extraordinary resolution 23 directly impacts Defendants’ clients, third parties who are wholly innocent in this 24 277 See Perez v. Ledesma, 401 U.S. 82, 108 (1971) (“Taxes are the lifeblood of government, 25 and their prompt and certain availability an imperious need.”). 278 Doc. 87 at 31-32. 26 279 Doc. 88 at 1-2. 280 See, e.g., United States v. ITS Fin., LLC, 592 Fed. App’x 387, 397 (6th Cir. 2014); United States v. Ireland, 2019 WL 3759533 (E.D. Mich. July 24, 2019) (permanently enjoining 27 defendant from acting as tax preparer and owning and operating a tax preparation business); United States v. Pugh, 717 F. Supp. 2d 271, 302 (E.D.N.Y. 2010); United States v. 28 Franchi, 756 F. Supp. 889, 893 (W.D. Pa. 1991). 1 matter, and also appears to run counter to the Constitutional guarantees of liberty

2 and freedom of contract.281

3 However, as the limited case law in this area demonstrates, those guarantees

4 are not absolute. And Defendants’ conduct in this case leaves this Court no viable

5 option but to concur with the governme nt’s proposed sanction. Mr. Henke has 6 repeatedly violated the lawful orders of the District Court, even after being warned 7 that failure to abide could result in the very sanction being recommended at this 8 time. The Court finds that no lesser sanction will deter Defendants from continuing 9 to commit willful violations of the tax laws and the District Court’s orders. 10 b. Other Sanctions Are Not Appropriate in this Case. 11 The Court has considered other sanctions ranging from doing nothing to 12 recommending Mr. Henke’s incarceration. A recommendation to maintain the status 13 quo ignores two obvious truths. First, Ms. Fink has provided her notice of 14 resignation and is no longer available to serve as a receiver.282 Second, such an order 15 would grant Mr. Henke additional time to continue with his tax avoidance, 16 rewarding him for his obstinacy and deliberate avoidance of his obligations under 17 the law, the injunction, and the District Court’s orders. 18 The appointment of a second receiver, as requested by Mr. Henke, is also not 19 a viable option. Defendant refused to work with Ms. Fink or Mr. Barr, and since Ms. 20 Fink’s resignation, there is no evidence in the record of any meaningful attempts by 21 Defendant to comply with the tax laws or pay what is owed. There is no evidence in 22 the record that appointing a second receiver – a step that would amount to “do- 23 over” – would be effective. The District Court appointed a competent and capable 24 receiver to work with Defendants to assist with the resolution of their tax issues. As 25 detailed above, Mr. Henke ultimately refused this help, spurned the Receiver, and 26 27 281 See Const. art. I, § 10. 28 282 Doc. 73-1. 1 blamed the Receiver and the District Court for his predicament. Given Defendants’

2 history, appointment of a second receiver is very likely to end in a similar fashion.

3 Mr. Henke also seeks to work with an outside firm. In his final briefing to this

4 Court, Mr. Henke provided a letter from a service which appears to indicate that the

5 service has been retained to assist w ith Defendants’ ongoing tax problems. 6 However, as previously stated, the apparent retention of this firm does not alter the 7 Court’s recommendation. Mr. Henke has frequently misled the Court as to his 8 retention of professionals that he claimed were assisting him or were going to be 9 retained to assist him.283 Given Mr. Henke’s record with the Receiver, the Court has 10 doubts about whether Mr. Henke will follow through with this firm or how 11 effectively he will be able to work with them to address his significant tax 12 delinquency. 13 Financial penalties are an option that the Court has considered and similarly 14 rejected. In its original motion for a show cause order filed on October 14, 2020, the 15 government requested a per diem fine, along with compensation for costs accrued 16 by the government because of Defendants’ contemptuous behavior.284 Such a per 17 diem fine for each day a contemnor fails to comply with an affirmative court order 18 is valid and enforceable.285 19 The Court finds that a financial penalty to induce compliance would be 20 ineffective. This is so because Mr. Henke has already demonstrated that he 21 prioritizes paying himself and his vendors over his taxes, even when the law and 22 District Court tell him otherwise.286 Furthermore, at best, a per diem fine would 23 likely induce only temporary compliance before Defendants reverted to past practice 24

25 283 See supra notes 196, 199. 284 Doc. 20 at 13. The government withdrew this request for financial penalties in its 26 Response to Order dated January 26, 2022. Doc. 26. In that order, the District Court solicited soliciting “input from Plaintiff as to what action the court should take to enforce [the injunction.]” Doc. 25. 27 285 See Int’l Union, United Mine Workers of Am. v. Bagwell, 512 U.S. 821, 829 (1994); United States v. Ayres, 166 F.3d 991, 995 (9th Cir. 1999). 28 286 See Feb. 28 Tr. at 19:2-7; see also Mar. 1. Tr. at 72:14-24. 1 of ignoring the Court’s order, failing to pay taxes, and failing to cooperate with a

2 receiver. The parties would then find themselves right back where they began with

3 the filing of this motion. Moreover, where the fundamental issue is an individual’s

4 refusal to properly pay taxes owed, it makes little sense to the Court to order a

5 person to pay money to the Court as pa rt of a civil contempt fine, as opposed to 6 where that money should be sent, the IRS.287 7 The Court has also considered a shorter duration for the permanent 8 injunction, or alternative conditions for lifting of the injunction after one year. The 9 Court finds that a shorter term for the injunction and alternative conditions are not 10 appropriate. This is so given the duration and magnitude of the willful tax avoidance 11 by Defendants, and Defendants’ unwillingness to comply with multiple prior orders 12 and instructions of the District Court. A 10-year injunction and the imposition of 13 strict conditions that must be met prior to an early release from that injunction are 14 appropriate under the facts of this case. 15 The Court has also considered incarceration as a sanction. Incarceration is an 16 appropriate coercive sanction for civil contempt so long at “the contemnor can avoid 17 the sentence imposed on him, or purge himself, by complying with the terms of the 18 original order.”288 The government is not seeking incarceration in this civil matter 19 and the Court is not recommending it. 20 The Court finds that anything less than the recommended sanction on these 21 facts would undermine the authority of the District Court. On two occasions the 22 District Court has clearly warned Mr. Henke of the consequences of failing to comply 23 with its order. When ordering the Stipulated Injunction – to which Mr. Henke 24 voluntarily agreed – the Court wrote that violating its order could result in Mr. 25 Henke and Action Security being ordered to “cease doing business immediately” and 26 287 But see United States v. Moore, No. 16-6054, 2017 WL 3718529 at 4 (D. N.J. Aug. 29, 2017) (denying permanent injunction seeking closure of dental office in part because motion was 27 “premature” and “cut[] off [Defendant’s] only real chance to repay his and practice’s liabilities”). 28 288 Hicks on Behalf of Feiock v. Feiock, 485 U.S. 624, 635 n. 7 (1988). 1 being “permanently enjoined from forming, incorporating, or owning another

2 business entity and working for any business in [any tax-related capacity.]”289

3 Similarly, in the Appointment Order, the District Court wrote, “[i]f the Receiver is

4 unable to cure those violations and determines that Action Security is unable or

5 unwilling to comply . . . the United Stat es shall immediately seek the permanent 6 closure of Action Security.”290 7 It does not appear that the incentives that might motivate a businessperson to 8 work with a receiver or otherwise take the necessary steps to comply with the law 9 and the Court’s orders work with Mr. Henke. The initial involvement of the IRS 10 failed. The Stipulated Injunction failed. The District Court’s receivership order 11 failed. The filing of the government’s motion seeking closure of Defendant Action 12 Security and a permanent injunction against Mr. Henke forbidding him from owning 13 or operating a similar business for 10 years failed. The looming threat of this Court’s 14 potential finding and recommendation granting the government’s motion and 15 proposed remedy failed. 16 Nothing has prevented Mr. Henke from recognizing the seriousness of his 17 dilemma and taking advantage of the opportunities provided to him by the IRS, the 18 District Court, and Ms. Fink. However, since breaking off contact with the Receiver, 19 there is nothing in the record demonstrating that Defendants have taken any steps 20 to comply with the District Court’s orders. Defendants’ inaction has occurred in spite 21 of the fact that any positive steps by Mr. Henke toward complying with the District 22 Court’s order would likely have been viewed favorably and would in no way have 23 harmed his position in this litigation. 24 In the Court’s view, Mr. Henke did not want to be told by anyone – the IRS, 25 the District Court, or Ms. Fink – how to run his business. However, that is precisely 26 what the District Court ordered. There is nothing in the record indicating that Mr. 27 289 Doc. 19 at 5. 28 290 Doc. 37 at 5. 1 Henke’s mindset has changed and that any action short of what is recommended

2 herein will be any more successful.

3 Mr. Henke expressed the opinion that, “[Action Security] is not a business that

4 you just can dissolve.”291 Unfortunately for him, that is simply not true. The District

5 Court can dissolve Action Security for Def endants’ nine-year streak of violating IRS 6 tax laws and failing to comply with multiple court orders. That is why this Court 7 recommends Action Security be dissolved and Mr. Henke enjoined from running a 8 business until Mr. Henke can demonstrate concrete actions he has taken to ensure 9 he can comply with the tax laws. 10 VI. CONCLUSION 11 For nearly a decade, Defendants have defied taxation with impunity. As of July 12 10, 2022, Action Security’s pyramiding tax debt totaled $4,467,738.53, with no sign 13 of decreasing despite numerous offers and directions of help from the District Court, 14 the IRS, and the Receiver. Defendants have not shown any willingness to respect our 15 nation’s tax laws or the District Court’s authority. And Mr. Henke’s promises of 16 change ring hollow. Mr. Henke’s actions during this case demonstrate that he will 17 not reform and that the Court should grant Plaintiff’s Motion for Sanctions to 18 Dissolve Action Security. 19 Defendants have been warned countless times that Action Security may be 20 shut down and that Mr. Henke might be enjoined from running a business if they did 21 not comply with tax laws, work with the Receiver, or follow court orders. These 22 warning were given upon commencement of this action by the IRS, with the filing of 23 the Stipulated Injunction, with the Appointment Order, throughout Defendants’ 24 correspondence with Plaintiff, and by the District Court. This Court therefore sees 25 no feasible lesser remedy at this stage. 26 27

28 291 Doc. 43 at 3. 1 Accordingly, this Court recommends that the District Court GRANT Plaintiff’s

2 Motion for Sanctions to Dissolve Action Security and ORDER a permanent injunction

3 containing the following provisions:

4 1. Scott Henke and Action Security shall cease accepting new clients within 30

5 days; 6 2. Action Security shall cease operating as a going concern within 120 days. 7 After that time, it may not, under any circumstance, perform services for 8 existing clients, sell products, or advertise to the public; 9 3. Within three days of service of the District Court’s order, Mr. Henke shall 10 conspicuously display at Action Security’s entrance a copy of this injunction 11 and a notice that the business will close by the date ordered which shall 12 include the following language;

13 Due to Action Security’s failure to pay taxes and comply with court orders, the District Court for the District of Alaska has 14 found Action Security and its owner, Scott Henke, in contempt of court. As a result of being found in contempt, the District 15 Court has entered a permanent injunction against Action Security and Scott Henke. Action Security and Scott Henke 16 shall cease accepting new clients within 30 days of the date of the District Court’s injunction and shall close its doors within 17 120 days of that injunction.

18 4. Mr. Henke shall not directly or indirectly own, control, manage, operate, or 19 serve as an officer or director of any business until the earlier of (1) his 20 successful petition for relief under paragraph 5; or (2) 10 years; 21 5. Mr. Henke may petition the Court for relief from this Permanent Injunction, 22 no earlier than one year after its entry, by demonstrating that he is capable 23 and likely to run a business in compliance with all federal tax laws. In 24 reviewing any petition for relief, the Court may consider, among other 25 factors, whether: 26 a. A certified public accountant approved by the Court, or by the United 27 States, attests that Mr. Henke has implemented sufficient internal 28 1 controls to ensure that all future federal taxes are reported and paid

2 on time;

3 b. Mr. Henke has reported and paid his own federal income taxes, in full

4 and on time, for the past five years;

5 c. Mr. Henke has reported and paid any state and local taxes due, in full 6 and on time, for the past five years; 7 d. Mr. Henke owes no outstanding debts; and 8 e. Mr. Henke has maintained a positive credit history; and 9 6. If Mr. Henke violates this injunction, he shall be incarcerated for up to three 10 days, or for as long as the contempt remains. 11 The Court also recommends that: 12 1. As recommended by Ms. Fink at Docket 48-1, the receivership ordered at 13 Docket 37 be terminated; and 14 2. Ms. Fink’s request to resign at Docket 73-1 be GRANTED. 15 16 DATED this 10th day of January, 2024 at Anchorage, Alaska. 17 s/ Kyle F. Reardon 18 KYLE F. REARDON United States Magistrate Judge 19 District of Alaska

20 NOTICE OF RIGHT TO OBJECT 21 Under 28 U.S.C. § 636(b)(1), a district court may designate a magistrate judge 22 to hear and determine matters pending before the Court. For dispositive matters, a 23 magistrate judge reports findings of fact and provides recommendations to the 24 presiding district court judge.292 A district court judge may accept, reject, or modify, 25 in whole or in part, the magistrate judge’s order.293 26 27 292 28 U.S.C. § 636(b)(1)(B). 28 293 Id. § 636(b)(1)(C). 1 A party may file written objections to the magistrate judge’s order within 14

2 fourteen days.294 Objections and responses are limited to five (5) pages in length

3 and should not merely reargue positions previously presented. Rather, objections

4 and responses should specifically identify the findings or recommendations objected

5 to, the basis of the objection, and any legal authority in support. Reports and 6 recommendations are not appealable orders. Any notice of appeal pursuant to Fed. 7 R. App. P. 4(a)(1) should not be filed until entry of the district court’s judgment.295 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 294 Id. 28 295 See Hilliard v. Kincheloe, 796 F.2d 308 (9th Cir. 1986).