1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA
9 United States of America, No. CV-20-08072-PCT-JAT
10 Plaintiff, ORDER
11 v.
12 Jeffrey S. Page,
13 Defendant. 14 15 Pending before the Court is the government’s motion for default judgment against 16 Defendant Jeffrey S. Page. (Doc. 15). The Court now rules on the motion. 17 I. BACKGROUND 18 We all make mistakes, the federal government included. This case involves a 19 mistake the Internal Revenue Service (IRS) made on May 5, 2017, when it mailed Page an 20 erroneous $491,104.01 tax refund check, which Page cashed on April 5, 2018. (Doc. 1 at 21 3). After Page did so, the IRS contacted Page and requested that he return the money to the 22 government. (Id.). On December 6, 2019, Page returned $210,000 of the erroneous refund 23 but not the rest. (Id.). On March 31, 2020, the government filed this case under 24 26 U.S.C. § 7405 to recover the remaining balance of the erroneous refund plus interest. 25 (Id. at 1). The government alleges that Page retained the remainder of the refund for his 26 personal use and enjoyment. (Id. at 3). 27 On June 16, 2020, the government filed Page’s waiver of service. (Doc. 10). 28 Because Page did not file a responsive pleading within 60 days of the government’s waiver 1 request, the government moved for default on August 24, 2020 under Federal Rule of Civil 2 Procedure (“Rule”) 55(a). (Doc. 11). The clerk entered default on August 25, 2020, and the 3 government moved for default judgment under Rule 55(b) on February 17, 2021. (Doc. 13, 4 Doc. 15). 5 II. LEGAL STANDARD 6 Once the clerk has entered default, a court may, but is not required to, grant default 7 judgment under Rule 55(b). Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980) (per 8 curiam). In considering whether to enter default judgment, a court may consider the 9 following factors: 10 (1) the possibility of prejudice to the plaintiff, (2) the merits of plaintiff’s substantive claim, (3) the sufficiency of the 11 complaint, (4) the sum of money at stake in the action; (5) the possibility of a dispute concerning material facts; (6) whether 12 the default was due to excusable neglect, and (7) the strong policy underlying the Federal Rules of Civil Procedure 13 favoring decisions on the merits. 14 Eitel v. McCool, 782 F.2d 1470, 1471–72 (9th Cir. 1986). When considering these factors, 15 a defendant is deemed to have admitted all well-pleaded allegations in the complaint. 16 DirecTV, Inc. v. Hoa Huynh, 503 F.3d 847, 851 (9th Cir. 2007). The Court considers these 17 factors below. 18 III. DISCUSSION 19 a. Merits of Plaintiff’s Substantive Claim and Sufficiency of the Complaint 20 “The Ninth Circuit has suggested that . . . two Eitel factors — involving the 21 substantive merits of plaintiff’s claim and the sufficiency of the complaint — require that 22 [a plaintiff’s] allegations ‘state a claim on which the [plaintiff] may recover.’” Kloepping 23 v. Fireman’s Fund, No. C 94-2684 TEH, 1996 WL 75314, at *2 (N.D. Cal. Feb. 13, 1996) 24 (quoting Danning v. Lavine, 572 F.2d 1386, 1388 (9th Cir. 1978)) (second alteration in 25 original). The Court finds that these two factors weigh strongly against default judgment. 26 In this case, 26 U.S.C. § 7405 authorizes the government to recover an erroneous 27 tax refund through a civil action. However, subject to an exception not relevant here, when 28 the government sues to recover an erroneous refund, 26 U.S.C. § 6532(b) provides that 1 recovery “shall be allowed only if such suit is begun within 2 years after the making of 2 such refund.” Under Ninth Circuit law, “[t]he refund is considered to have been made on 3 the date the taxpayer received the refund check.” United States v. Carter, 906 F.2d 1375, 4 1377 (9th Cir. 1990); see also O’Gilvie v. United States, 519 U.S. 79, 91 (1996) (“[T]he 5 law ordinarily provides that an action to recover mistaken payments of money accrues upon 6 the receipt of payment.” (internal quotation marks and citation omitted)). “Although the 7 statute of limitations is ordinarily an affirmative defense that the defendant must raise at 8 the pleadings stage and that is subject to rules of forfeiture and waiver, district courts may 9 dismiss an action sua sponte on limitations grounds in certain circumstances where the 10 facts supporting the statute of limitations defense are set forth in the papers plaintiff himself 11 submitted.” Donell v. Keppers, 835 F. Supp. 2d 871, 877 (S.D. Cal. 2011) (quoting Walters 12 v. Indus. & Commer. Bank of China, Ltd., 651 F.3d 280, 293 (2d Cir. 2011)); see also 13 Taiwan C.R. Litig. Org. v. Kuomintang Bus. Mgmt. Comm., 486 F. App’x 671, 671–72 (9th 14 Cir. 2012) (“[T]he district court did not err by addressing the statute of limitations issue 15 sua sponte in ruling on plaintiffs’ motion for default judgment.”). 16 The government initiated the instant action on March 31, 2020. (Doc. 1). Therefore, 17 the earliest Page could have received the erroneous refund check for the government’s suit 18 to fall within the statute of limitations is March 31, 2018. Although the government’s 19 complaint does not allege when Page received the refund check, the government mailed 20 Page the erroneous refund on May 5, 2017, and it defies common sense to believe it took 21 330 days for Page to receive the check in the mail. See Ashcroft v. Iqbal, 556 U.S. 662, 679 22 (2009) (recognizing that “[d]etermining whether a complaint states a plausible claim for 23 relief will . . . be a context-specific task that requires the reviewing court to draw on its 24 judicial experience and common sense”). Accordingly, it is apparent from the face of the 25 government’s complaint that its claim is barred by the statute of limitations. 26 The government, however, argues that the statute of limitations does not begin to 27 run when Page received the check, but rather when Page cashed the check on April 5, 2018. 28 (Doc. 15 at 8–11). The government notes that the Ninth Circuit in Carter and the Supreme 1 Court in O’Gilvie considered two possible points at which the statute of limitations could 2 begin to run: the date on which the IRS sent the erroneous refund check and the date on 3 which the taxpayer received it. O’Gilvie, 519 U.S. at 90–92; Carter, 906 F.2d at 1377. In 4 both cases, the Courts determined the statute of limitations began to run when the taxpayer 5 received the check but did not consider whether the better starting point would be the date 6 on which the check cleared. O’Gilvie, 519 U.S. at 91–92; Carter, 906 F.2d at 1377. 7 Instead, the government directs the Court to United States v. Commonwealth Energy 8 Sys.
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1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA
9 United States of America, No. CV-20-08072-PCT-JAT
10 Plaintiff, ORDER
11 v.
12 Jeffrey S. Page,
13 Defendant. 14 15 Pending before the Court is the government’s motion for default judgment against 16 Defendant Jeffrey S. Page. (Doc. 15). The Court now rules on the motion. 17 I. BACKGROUND 18 We all make mistakes, the federal government included. This case involves a 19 mistake the Internal Revenue Service (IRS) made on May 5, 2017, when it mailed Page an 20 erroneous $491,104.01 tax refund check, which Page cashed on April 5, 2018. (Doc. 1 at 21 3). After Page did so, the IRS contacted Page and requested that he return the money to the 22 government. (Id.). On December 6, 2019, Page returned $210,000 of the erroneous refund 23 but not the rest. (Id.). On March 31, 2020, the government filed this case under 24 26 U.S.C. § 7405 to recover the remaining balance of the erroneous refund plus interest. 25 (Id. at 1). The government alleges that Page retained the remainder of the refund for his 26 personal use and enjoyment. (Id. at 3). 27 On June 16, 2020, the government filed Page’s waiver of service. (Doc. 10). 28 Because Page did not file a responsive pleading within 60 days of the government’s waiver 1 request, the government moved for default on August 24, 2020 under Federal Rule of Civil 2 Procedure (“Rule”) 55(a). (Doc. 11). The clerk entered default on August 25, 2020, and the 3 government moved for default judgment under Rule 55(b) on February 17, 2021. (Doc. 13, 4 Doc. 15). 5 II. LEGAL STANDARD 6 Once the clerk has entered default, a court may, but is not required to, grant default 7 judgment under Rule 55(b). Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980) (per 8 curiam). In considering whether to enter default judgment, a court may consider the 9 following factors: 10 (1) the possibility of prejudice to the plaintiff, (2) the merits of plaintiff’s substantive claim, (3) the sufficiency of the 11 complaint, (4) the sum of money at stake in the action; (5) the possibility of a dispute concerning material facts; (6) whether 12 the default was due to excusable neglect, and (7) the strong policy underlying the Federal Rules of Civil Procedure 13 favoring decisions on the merits. 14 Eitel v. McCool, 782 F.2d 1470, 1471–72 (9th Cir. 1986). When considering these factors, 15 a defendant is deemed to have admitted all well-pleaded allegations in the complaint. 16 DirecTV, Inc. v. Hoa Huynh, 503 F.3d 847, 851 (9th Cir. 2007). The Court considers these 17 factors below. 18 III. DISCUSSION 19 a. Merits of Plaintiff’s Substantive Claim and Sufficiency of the Complaint 20 “The Ninth Circuit has suggested that . . . two Eitel factors — involving the 21 substantive merits of plaintiff’s claim and the sufficiency of the complaint — require that 22 [a plaintiff’s] allegations ‘state a claim on which the [plaintiff] may recover.’” Kloepping 23 v. Fireman’s Fund, No. C 94-2684 TEH, 1996 WL 75314, at *2 (N.D. Cal. Feb. 13, 1996) 24 (quoting Danning v. Lavine, 572 F.2d 1386, 1388 (9th Cir. 1978)) (second alteration in 25 original). The Court finds that these two factors weigh strongly against default judgment. 26 In this case, 26 U.S.C. § 7405 authorizes the government to recover an erroneous 27 tax refund through a civil action. However, subject to an exception not relevant here, when 28 the government sues to recover an erroneous refund, 26 U.S.C. § 6532(b) provides that 1 recovery “shall be allowed only if such suit is begun within 2 years after the making of 2 such refund.” Under Ninth Circuit law, “[t]he refund is considered to have been made on 3 the date the taxpayer received the refund check.” United States v. Carter, 906 F.2d 1375, 4 1377 (9th Cir. 1990); see also O’Gilvie v. United States, 519 U.S. 79, 91 (1996) (“[T]he 5 law ordinarily provides that an action to recover mistaken payments of money accrues upon 6 the receipt of payment.” (internal quotation marks and citation omitted)). “Although the 7 statute of limitations is ordinarily an affirmative defense that the defendant must raise at 8 the pleadings stage and that is subject to rules of forfeiture and waiver, district courts may 9 dismiss an action sua sponte on limitations grounds in certain circumstances where the 10 facts supporting the statute of limitations defense are set forth in the papers plaintiff himself 11 submitted.” Donell v. Keppers, 835 F. Supp. 2d 871, 877 (S.D. Cal. 2011) (quoting Walters 12 v. Indus. & Commer. Bank of China, Ltd., 651 F.3d 280, 293 (2d Cir. 2011)); see also 13 Taiwan C.R. Litig. Org. v. Kuomintang Bus. Mgmt. Comm., 486 F. App’x 671, 671–72 (9th 14 Cir. 2012) (“[T]he district court did not err by addressing the statute of limitations issue 15 sua sponte in ruling on plaintiffs’ motion for default judgment.”). 16 The government initiated the instant action on March 31, 2020. (Doc. 1). Therefore, 17 the earliest Page could have received the erroneous refund check for the government’s suit 18 to fall within the statute of limitations is March 31, 2018. Although the government’s 19 complaint does not allege when Page received the refund check, the government mailed 20 Page the erroneous refund on May 5, 2017, and it defies common sense to believe it took 21 330 days for Page to receive the check in the mail. See Ashcroft v. Iqbal, 556 U.S. 662, 679 22 (2009) (recognizing that “[d]etermining whether a complaint states a plausible claim for 23 relief will . . . be a context-specific task that requires the reviewing court to draw on its 24 judicial experience and common sense”). Accordingly, it is apparent from the face of the 25 government’s complaint that its claim is barred by the statute of limitations. 26 The government, however, argues that the statute of limitations does not begin to 27 run when Page received the check, but rather when Page cashed the check on April 5, 2018. 28 (Doc. 15 at 8–11). The government notes that the Ninth Circuit in Carter and the Supreme 1 Court in O’Gilvie considered two possible points at which the statute of limitations could 2 begin to run: the date on which the IRS sent the erroneous refund check and the date on 3 which the taxpayer received it. O’Gilvie, 519 U.S. at 90–92; Carter, 906 F.2d at 1377. In 4 both cases, the Courts determined the statute of limitations began to run when the taxpayer 5 received the check but did not consider whether the better starting point would be the date 6 on which the check cleared. O’Gilvie, 519 U.S. at 91–92; Carter, 906 F.2d at 1377. 7 Instead, the government directs the Court to United States v. Commonwealth Energy 8 Sys. & Subsidiary Cos., 235 F.3d 11 (1st Cir. 2000), and United States v. Greene-Thapedi, 9 398 F.3d 635 (7th Cir. 2005). Both cases characterized the Supreme Court’s statements on 10 the issue in O’Gilvie as dicta and, consequently, did not consider O’Gilvie binding. In 11 Commonwealth Energy, the First Circuit also declined to follow Carter, explaining that 12 Carter “assumed, without elaboration, that the date a refund is ‘made’ is the date it is 13 received, and did not address the important policies which [the First Circuit] considered in 14 choosing between the date of receipt rule and date of clearance rule.” 235 F.3d at 14. 15 Instead, Commonwealth Energy concluded that the statute of limitations began to run “at 16 the time the check cleared the Federal Reserve and payment was authorized by the 17 Treasury” and observed that “[u]sing the check-clearing date here both satisfies the rule 18 that we construe statutes of limitations in favor of the Government and provides a certain 19 limitations date by which the Government must abide.” Id. In Greene-Thapedi, the Seventh 20 Circuit adopted the holding of Commonwealth Energy and dismissed Carter as “just 21 another case in which the court was presented with a choice between the date of mailing 22 and the date of receipt.” 398 F.3d at 639. 23 This Court, however, is not at liberty to depart from Carter in light of what the 24 government believes is a better rule adopted by other Circuits. Unless and until the Ninth 25 Circuit chooses to revisit, clarify, or depart from Carter, it remains binding on this Court. 26 And, under Carter, a “refund is considered to have been made on the date the taxpayer 27 received the refund check.” 906 F.2d at 1377. 28 Accordingly, the Court finds that the government’s claim is barred by 1 26 U.S.C. § 6532(b), and this weighs strongly against granting the government’s motion. 2 b. Remaining Factors 3 The Court’s consideration of the remaining Eitel factors is fairly straightforward. 4 First, the Court finds that the government will be prejudiced in the absence of default 5 judgment. Page received a considerable amount of money from the government to which 6 he is not entitled, and the government has failed to collect the money from Page without 7 court intervention. Accordingly, this factor weighs in favor of default judgment. 8 Next, the government concedes that the amount at issue is substantial, which weighs 9 against granting default judgment, as does public policy favoring decisions on the merits. 10 Conversely, because all well-pleaded allegations of the complaint are deemed true 11 upon the entry of default, DirecTV, 503 F.3d at 851, there are no genuine issues of material 12 fact, which favors granting default judgment. 13 Further, because Page was made aware of the commencement of this case and 14 waived service, the record presently before the Court does not reflect that Page’s failure to 15 file a responsive pleading was the product of excusable neglect, and this factor also weighs 16 in favor of the government. 17 c. Summary 18 Balancing the Eitel factors, the Court does not find the government entitled to 19 default judgment. Although the government has shown prejudice and the lack of material 20 issues of fact or excusable neglect, it has not presented a meritorious substantive claim, its 21 complaint is insufficient on its face, and the remaining factors weigh in Page’s favor. Under 22 these circumstances, the Court does not find that the government should be able to collect 23 a debt otherwise uncollectable under 26 U.S.C. § 6532(b) because Page has failed to file a 24 responsive pleading. 25 IV. CONCLUSION 26 For the foregoing reasons, 27 IT IS ORDERED that the government’s Motion for Default Judgment (Doc. 15) is 28 DENIED. 1 IT IS FURTHER ORDERED that within 14 days of this Order, the government shall show cause as to why this case should not be dismissed with prejudice as barred by 26 U.S.C. § 6532(b). If the government fails to do so, the Clerk of Court shall dismiss this 4|| case with prejudice and enter judgment accordingly. 5 Dated this 16th day of April, 2021. 6 '
g James A. C rg Senior United States District Judge 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
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