United States v. Conces

507 F.3d 1028, 100 A.F.T.R.2d (RIA) 6709, 2007 U.S. App. LEXIS 26564, 2007 WL 3406765
Court of Appeals for the Sixth Circuit·Decided November 16, 2007·No. 07-1343·Published·Cited by 70 cases

Opinion

OPINION

ROSEN, District Judge.

I. INTRODUCTION

Plaintiff/Appellee United States of America commenced this suit on October 27, 2005 in the United States District Court for the Western District of Michigan, seeking to enjoin Defendant/Appellant Charles Conces from promoting an alleged tax-fraud scheme and engaging in other conduct that allegedly interfered with the administration and enforcement of the federal tax laws. After Conces failed to make the initial disclosures mandated under *1033 Fed.R.Civ.P. 26(a), the Government sought, and the district court granted, an order compelling these disclosures. When Conces did not comply with this order, the district court entered a default judgment against him, permanently enjoined him from promoting any scheme to avoid federal tax liability, and granted the Government permission to conduct post-judgment discovery to ensure his compliance with the terms of the court’s injunctive award.

During post-judgment discovery, the Government served five interrogatories and a document production request upon Conces, who responded by answering only two of the interrogatories and refusing to provide the requested documents. After many delays due to Conces’s numerous objections to the interrogatories, and after the entry of two orders directing him to respond to the Government’s discovery requests, the district court entered a February 23, 2007 order finding Conces in civil contempt and directing that he be incarcerated until he purged this contempt by complying with the court’s prior orders.

Conces now appeals from this order, raising a number of challenges to the district court’s finding of contempt and to other rulings made in the course of the lower court proceedings. As explained below, we find that certain of the challenges advanced by Conces are not properly before us, and we affirm the district court’s rulings as to all remaining issues.

II. FACTUAL AND PROCEDURAL BACKGROUND 1

According to the Government’s complaint, Defendani/Appellant Charles Conces is the founder and chairman of the National Lawman Committees for the Public Interest (the “Lawmen”), an unincorporated organization based in Battle Creek, Michigan. The Government alleges that Conces has counseled and assisted clients in filing fraudulent tax returns, based on his belief that the Sixteenth Amendment’s authorization of federal income taxation “without apportionment” extends only to corporate profits and not to unincorporated businesses or individuals. Conces also has allegedly promoted this belief through seminars, electronic mail groups, and Internet websites.

In October of 2005, the Government filed suit against Conces in the United States District Court for the Western District of Michigan, seeking to enjoin him from promoting his purportedly fraudulent schemes to avoid payment of federal income taxes. 2 In its plea for injunctive relief, the Government sought to (1) enjoin Conces from promoting or marketing any tax shelter that advises others to attempt to violate the internal revenue laws; (2) require Conces to contact persons he has assisted in preparing federal income tax returns and inform them of the court’s findings; and (3) require him to provide these individuals’ contact information to the Government. The Government also *1034 requested post-judgment discovery to monitor Conces’s compliance with the requested injunction.

In February of 2006, the Government filed a motion to compel Conces to make the initial disclosures mandated under Fed.R.Civ.P. 26(a), as well as a motion for a preliminary injunction. On March 7, 2006, the district court granted the motion to compel and ordered Conces to make the requisite disclosures by March 21, 2006. In this order, the court expressly “note[d], for Defendant’s benefit, that Rule 37(c)(1) authorizes a court to impose additional sanctions for a party’s failure to disclose, up to and including ‘rendering a judgment by default against the disobedient party.’ ” (3/7/2006 Order at 3 (quoting Fed.R.Civ.P. 37(b)(2)(C)).)

When Conces failed to make the disclosures ordered by the court, the Government filed a motion for entry of a default judgment against him as a sanction for his refusal to comply. Following a hearing on April 19, 2006, the court entered an April 24, 2006 default judgment against Conces as requested by the Government. In determining that this was an appropriate sanction, the district court found (1) that Conces’s failure to cooperate in discovery and comply with the court’s order was due to wilful bad faith; (2) that the Government was prejudiced by this lack of cooperation and compliance; (3) that Conces had been warned about the possibility of a default judgment; and (4) that a less drastic sanction was unlikely to have any effect in light of his past conduct. In addition, the court granted a permanent injunction, and gave its permission for the Government to pursue post-judgment discovery to monitor Conces’s compliance with the court’s injunctive award. 3

In July of 2006, the Government served upon Conces its first post-judgment interrogatories and request for production of documents. These discovery requests sought information dating back to January 2002 regarding, among other matters: (i) any individuals for whom Conces drafted any portion of a federal income tax return (Interrogatory No. 2); (ii) any individuals for whom he drafted any portion of a letter to any government agency or to whom he provided advice related to federal income taxes (Interrogatory No. 3); (iii) all bank accounts held in Conces’s name or the name of the Lawmen (Interrogatory No. 4); and (iv) any individuals with whom he had contact regarding, or who were responsible for, the Internet website “www. lawmenamerica.com” (Interrogatory No. 5). The Government also requested copies of all tax returns, letters, or other documents that Conces had assisted in drafting for the persons described in Interrogatories 2 and 3.

Conces initially responded by letter dated August 9, 2006, stating that he would respond to the Government’s discovery requests only if “the court wishes that I respond to the Interrogatories under Oath before this matter is settled.” When the Government advised Conces in an August 16, 2006 letter that it would seek an order from the court if he did not provide responses by August 25, 2006, Conces sent an August 18, 2006 letter to the Government in which he lodged various general objections to the Government’s discovery requests 4 and answered only some, but not all, of the interrogatories.

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United States v. Conces, 507 F.3d 1028, 100 A.F.T.R.2d (RIA) 6709, 2007 U.S. App. LEXIS 26564, 2007 WL 3406765 (6th Cir. 2007).

507 F.3d 1028 (United States v. Conces) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.

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