Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-1_05-cv-00431/USCOURTS-caed-1_05-cv-00431-7/pdf.json

Nature of Suit Code: 870
Nature of Suit: Tax Suits
Cause of Action: 26:7403 Suit to Enforce Federal Tax Lien

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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

UNITED STATES OF AMERICA,

Plaintiff,

v.

GEORGE LOREN REED, individually,

and as trustee to the REED

FAMILY TRUST; DUANE REED,

individually, and as trustee to

the REED FAMILY TRUST; LIDCO,

INC,; SHIRLEY LUNDY, an

individual,

Defendants.

 

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1:05-cv-0431 OWW LJO

ORDER DENYING DEFENDANT

GEORGE LOREN REED’S

APPLICATION FOR TEMPORARY

RESTRAINING ORDER, ORDER TO

STAY VACATION OF PREMISES

AND SALE OF PROPERTY (Doc.

74), DENYING MOTION TO SET

ASIDE DEFAULT JUDGMENT

(Doc. 67) AND VACATING ORAL

ARGUMENT SET FOR MARCH 5,

2007

Defendant George Loren Reed, represented by attorney William

McPike, filed a Motion to Set Aside Default Judgment on January

4, 2006, noticing the motion for hearing on March 5, 2007. 

On January 17, 2007, Mr. Reed, proceeding in pro per, filed

an Application for Temporary Restraining Order to Stay Vacation

of Premises and Sale of Property. By this motion, Mr. Reed seeks

an order “staying governmental action in evicting him from the

premises on January 23, 2007, and in restraining any other

enforcement proceedings on its default judgment, until March 5,

2007, and until this Court arrives at an adjudication of his

Case 1:05-cv-00431-OWW -LJO Document 81 Filed 02/02/07 Page 1 of 13
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motion to vacate ....” 

In substance, Mr. Reed asserts that the government’s action

to collect taxes from Mr. Reed is improper as he does not owe

taxes, and that any obligation for such taxes for the year 1981

is time barred. Mr. Reed further relies on a transcript and the

statute of limitations which he asserts shows the taxes to be

time barred. Mr. Reed further asserts that there is no tax

liability against Gladys Reed and Raymond Reed, and that a

release of levy filed March 30, 1994, is further evidence to

support his position.

The government’s Opposition to these two motions was filed

January 19, 2007. 

A. BACKGROUND FACTS

Default judgment was entered in this case on February 2,

2006, and an order for foreclosure issued in favor of Plaintiff

United States of America, to enforce a money judgment entered

against George Loren Reed’s deceased parents, George Raymond Reed

and Gladys Reed, for unpaid tax debts, against real property

located in Stanislaus County, California, particularly described

in the Complaint and Judgment, (“the Property”). Mr. Reed had

notice of this motion but did not file an opposition or appear at

the hearing. 

Mr. Reed and his co-defendants filed a Notice of Appeal on

May 3, 2006, from the Order Entering Default Judgment and for

foreclosure of the property. George Loren Reed also moved to

stay the enforcement of the judgment pending this appeal. The

motion to stay enforcement was briefed and heard on September 17,

2006. Following that hearing, the court received by U.S. mail a

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letter from George Loren Reed indicating that he had filed for

Chapter 11 bankruptcy on September 14, 2006. On September 18,

2006, the U.S. Court of Appeals for the Ninth Circuit dismissed

the appeal of Duane Reed, Shirley Lundy and George Loren Reed for

their failure to file an opening brief. The PACER system for the

United States Bankruptcy Court for the Eastern District of

California establishes that George Loren Reed filed a bankruptcy

petition in Case No. 06-90363 on July 14, 2006 and that the

bankruptcy petition was dismissed by Order filed on August 31,

2006. The PACER system for the United States Bankruptcy Court

for the Eastern District of California establishes that George

Loren Reed filed a bankruptcy petition in Case No. 06-90522 on

September 13, 2006 and that the bankruptcy petition was dismissed

by Order filed on November 20, 2006. Because the automatic stay

no longer precluded resolution of the Motion for Stay Pending

Appeal, that motion was denied as moot based on the Ninth

Circuit’s dismissal of the appeal by Order filed on December 15,

2006.

B. THE LAW AND ANALYSIS

1. APPLICATION FOR TEMPORARY RESTRAINING ORDER TO STAY

VACATION OF PREMISES AND SALE OF PROPERTY.

The Anti-Injunction Act, 26 U.S.C. 7421(a), provides that

“no suit for the purpose of restraining the assessment or

collection of any tax shall be maintained in any court by any

person, whether or not such person is the person against whom the

tax is assessed.” Section 7421(a) bars relief against the United

States as sovereign, unless an action is brought in exact

compliance with the terms of any statute under which the

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sovereign has consented to be sued. United States v. Sherwood,

332 U.S. 584, 590 (1941); Gilbert v. DeGrossa, 756 F.2d 1455,

1458 (9th Cir. 1985). Subject to exceptions set forth in Section

7421(a), none of which here apply, the Anti-Injunction Act bars

District Courts from exercising jurisdiction over the United

States’ assessment and collection of Federal taxes to prevent

pre-enforcement judicial interference. Bob Jones University v.

Simon, 416 U.S. 725, 736 (1974). Section 7421(a) prohibits suits

to restrain the assessment or collection of tax, and also

prevents the court from granting equitable relief. Shannon v.

United States, 521 F.2d 56, 58 (9th Cir. 1975), cert. denied, 424

U.S. 965 (1976). A judicial exception to the Anti-Injunction Act

exists when a taxpayer demonstrates: (1) under no circumstances

can the United States ultimately prevail on the merits of the

case; and (2) the taxpayer will suffer irreparable injury without

injunctive relief. Elias v. Connett, 908 F.2d 521, 525 (9th Cir.

1990). If the United States has a good faith belief in its

claim, this is sufficient to establish United States may prevail

on the merits, and the taxpayer is not entitled to relief under

the judicially created exception to the Anti-Injunction Act. 

The judgment sought to be enforced here were entered against

George Raymond Reed and Gladys Reed against the property. The

money judgments and the order of foreclosure applicable to the

property have been adjudicated by final judgments of this Court. 

The relief sought by George Loren Reed in the pending

Application for Temporary Restraining Order and Stay is

injunctive and equitable. No applicable statutory exception to

the Anti-Injunction Act exists. The equitable relief sought by

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George Loren Reed is barred as a matter of law. 

2. MOTION TO SET ASIDE DEFAULT JUDGMENT

As noted, George Loren Reed, by attorney William McPike, 

filed a Motion to Set Aside Default Judgment, noticing the motion

for hearing on March 5, 2007. 

Upon review of the papers in connection with the Motion to

Set Aside Default Judgment, this motion is suitable for decision

without oral argument. Rule 78-230(h), Local Rules of Practice.

George Loren Reed moves to set aside the default judgment

pursuant to pursuant to Rule 60(b), Federal Rules of Civil

Procedure. Reed contends that he is entitled to relief because

of “mistake, inadvertence, surprise, or excusable neglect”, Rule

60(b)(1), because of fraud, Rule 60(b)(3), and pursuant to Rule

60(b)(6), for “any other reason justifying relief from the

operation of the judgment.”

a. Rule 60(b)(1) - Excusable Neglect.

 Default judgments are disfavored, and cases should be

decided on their merits whenever reasonably possible. Pena v.

Seguros La Commercial, S.A., 770 F.2d 811, 814 (9 Cir.1985). th

The interest in finality of judgment “should give way fairly

readily, to further the competing interest in reaching the merits

of a dispute.” TCI Group Life Ins. Plan v. Knoebber, 244 F.3d

691, 696 (9 Cir.2001). th

The Ninth Circuit’s standard for excusable neglect has

evolved over time, not always consistently, and is applied in a

three-part test explicated by Falk v. Allen, 739 F.2d 461, 463

(9 Cir.1984): th

(1) whether Defendant engaged in culpable

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conduct that led to the default;

(2) whether Defendant had a meritorious

defense; or

(3) whether reopening the default judgment

would prejudice Plaintiff.

(the ‘Falk’ factors). A party’s conduct is considered culpable

“if he has received actual or constructive notice of the filing

of the action and intentionally failed to answer.” Alan Newman

Prods., Inc. v. Albright, 862 F.2d 1388, 1392 (9 Cir.1988). th

But in 1983, in Pioneer Investment Services Co. v. Brunswick

Associates, Ltd., 507 U.S. 380, 395 (1993), the Supreme Court

held that excusable neglect could encompass some intentional

failures to act, and explained that a court should determine

whether such intentional failures are excusable by examining a

number of equitable factors. The Ninth Circuit, in TCI, 244 F.3d

at 698, examined whether the Falk factors and the holding from

Alan Newman were still valid after Pioneer. TCI concluded these

holdings were still good law, after providing some clarification

of the pre-existing Ninth Circuit standards. See TCI, 244 F.3d

at 697-699.

TCI reaffirmed that a party’s conduct could be considered

culpable if that party “received actual or constructive notice of

the filing of the action and intentionally failed to answer.” 

Id. at 697. However, in light of Pioneer, the “intentional

failure to answer” element must be interpreted narrowly. 

Specifically, 

Neglectful failure to answer as to which the

defendant offers a credible, good faith

explanation negating any intention to take

advantage of the opposing party, interfere

with judicial decisionmaking, or otherwise

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manipulate the legal process is not

‘intentional’ under our default cases, and is

therefore not necessarily - although it

certainly may be, once the equitable factors

are considered - culpable or inexcusable.

TCI, 244 F.3d at 698-699. 

In arguing that he is entitled to set aside the default

judgment because of excusable neglect, Mr. Reed avers in his

declaration:

4. When I received a copy of the

government’s motion for entry of default

judgment, I immediately sought legal advise

[sic] from representatives at the Freedom Law

School, which is located in Phelan,

California. At that time I was not

represented by an attorney because I could

not afford to hire one, and the legal advise

[sic] from the Freedom Law School was the

best I could do to preserve my defenses.

5. I spoke to representatives at the law

school and they indicated they would be able

to respond to the government’s motion and

file a response for me. I gave them the

information pertinent to the defenses I

intended to raise for the response to this

motion. I gave them the paperwork relevant

to the tax periods (and tax assessment

liability) I was contesting and paid them a

fee for the work needed for them to prepare a

response.

6. Indeed, throughout the period after

giving them the paperwork, I periodically

called them and asked them for an update on

the progress to their response. The last

time I called them for an update was

approximately March of 2006, which was

already too late in terms of filing a

response because this Court had already

decided the case by that time. I didn’t know

this at the time, but it was apparent to me

later, after learning that a decision had

already been reached, that the Freedom Law

School never filed a response on my behalf

and did not do anything to defend my

interests with respect to the government’s

motion for entry of a default judgment. 

Instead, they filed a Notice of Appeal, which

did not address the concerns of this Court or

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the issues of the government’s motion.

Mr. Reed’s declaration does not in any way explain his

failure to file an Answer to the Complaint or to the First

Amended Complaint. Furthermore, the averments quoted above are

contradicted by the record in this action and before the Ninth

Circuit. By Order filed on December 13, 2005, the hearing on the

Motion for Default Judgment was continued from December 19, 2005

to January 1, 2006, but George Loren Reed’s request for a 60 day

extension of time to seek counsel was denied, the Court ruling

that Mr. Reed “has had ample time to obtain counsel in this

matter.” As noted, no opposition to the Motion for Default

Judgment was filed and no appearance at the hearing was made by

Mr. Reed. Mr. Reed’s averment that he did not know in March 2006

that the Motion for Default Judgment had been granted by Order

filed on February 2, 2006 is belied by the Court’s certificate of

service, which shows service of that Order on Mr. Reed. 

Furthermore, Mr. Reed’s averment that law students at the Freedom

Law School filed the Notice of Appeal is false. The Notice of

Appeal filed on May 3, 2006 (Doc. 51) is signed by George Loren

Reed as well as his co-defendants. The PACER system for the

Ninth Circuit Court of Appeals for USCA Case No. 06-15877

establishes that the appeal was filed by George Loren Reed and

his co-defendants and, as noted, was dismissed for failure to

prosecute. 

This record, when combined with Mr. Reed’s failure to

prosecute the appeal to the Ninth Circuit and the dismissals of

the two bankruptcy petitions establishes that George Loren Reed’s

failure to answer was intentional, culpable, and does not negate

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Furthermore, Mr. Reed’s excuse that he mistakenly relied 1

upon legal advice from the “Freedom Law School” does not provide

justification to set aside the default judgment. United States

v. Scharringhausen, 226 F.R.D. 406, 409 (S.D. Cal. 2005) (a

litigant cannot avoid the consequences of a legal advisor’s acts

or omissions) (citing, Link v. Wabash Railroad Co., 370 U.S. 626,

633-34 (1962). Mr. Reed has suffered criminal convictions in a

related case, United States v. Knight, et al., No. CR-F-95-5174

OWW/LJO, where actions he took in the year 1994 and prior, to

attempt to defeat tax liability of himself and his parents, to

the Internal Revenue Service, and to keep the real property at

issue, from being levied on or otherwise foreclosed, resulted in

criminal convictions. In that case, among others, he asserted

the defense that he relied in good faith and upon the mistaken

belief that his actions were justified under law. Mr. Reed has

represented himself throughout proceedings with the United States

and has no basis to claim reliance on the advice of the “Freedom

Law School.”

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any intention to take advantage of the opposing party, interfere

with judicial decisionmaking, or otherwise manipulate the legal

process.1

The second element is whether the applicant has a

meritorious defense. Mr. Reed argues that nobody owes the taxes

that are the underlying basis for the judgment upon which the

Order of Foreclosure was issued, further that any judgment is

barred by the statute of limitations. As the United States 

correctly argues, the money judgment upon which the Foreclosure

Order is based, was entered against his parents, George Raymond

Reed and Gladys Reed for their tax debts, not the tax debts of

George Loren Reed. The tax debts for the tax periods in the

underlying action were all reduced to judgment that is now final

as the Ninth Circuit dismissed the appeal of George Loren Reed

and others. No petition for cert was ever filed. The statute of

limitations does not bar enforcement of the judgment, because the

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United States may enforce a judgment of foreclosure enforcing an

unpaid income tax obligation at any time. United States v.

Summerlin, 310 U.S. 414, 416 (1940); United States v. Overman,

424 F.2d 1142, 1147 (1970). Mr. Reed’s arguments that transfers

of the subject property to the Reed Family were not properly

reflected on the title report, attached to the Declaration of

Chief Title Officer Paul Kane, filed by the United States in

support of the Motion for Default Judgment, is without legal

consequence. George Loren Reed does not dispute and has never

disputed, that George Raymond Reed and Gladys Reed held title to

the subject property before they fraudulently transferred the

real property to the Reed Family Trust, (or other sham trusts). 

This was previously adjudicated in an order voiding fraudulent

transfers from George Raymond Reed and Gladys Reed to the Reed

Family Trust. Such transfers to the Reed Family Trust or to

other parties whether or not reflected on the title report, are

irrelevant.

The final factor is prejudice to the United States. As the

United States argues, George Loren Reed has been in active

conflict with the United States since the mid-1980s, over 20

years. Both civil and criminal proceedings concerning Mr. Reed

and the property have been complex and extended. A valid and

subsisting judgment for foreclosure sale of property has finally

been entered. The United States would be severely prejudiced if

further delay were occasioned which would defeat the strong

public policy in favor of prompt collection of taxes. Franchise

Tax Board of California v. United States Postal Service, 467 U.S.

512, 523 (1984). 

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The applicant, George Loren Reed, has failed to establish

any of the required elements to justify the setting aside of the

default judgment pursuant to Rule 60(b)(1). 

b. Rule 60(b)(3) - Fraud.

Mr. Reed seeks to set aside the default judgment on the

basis of fraud. 

The burden of proof of fraud is on the moving party, fraud

must be shown by clear and convincing evidence, and it must have

prevented the moving party from fully and fairly presenting his

case. Wright, Miller & Kane, Federal Practice and Procedure:

Civil 2d § 2860, pp. 312-313. 

As concluded above, Mr. Reed’s arguments that transfers of

the subject property to the Reed Family were not properly

reflected on the title report, attached to the Declaration of

Chief Title Officer Paul Kane, filed by the United States in

support of the Motion for Default Judgment, is without legal

consequence. George Loren Reed does not dispute and has never

disputed, that George Raymond Reed and Gladys Reed held title to

the subject property before they fraudulently transferred the

real property to the Reed Family Trust, (or other sham trusts). 

This was previously adjudicated in an order voiding fraudulent

transfers from George Raymond Reed and Gladys Reed to the Reed

Family Trust. Such transfers to the Reed Family Trust or to

other parties whether or not reflected on the title report, are

irrelevant. Therefore, Mr. Reed has not demonstrated by any

fraud, much less by clear and convincing evidence, and makes no

showing that any alleged fraud prevented him from opposing the

Motion for Default Judgment. 

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Mr. Reed’s objections to the admissibility of publicly and 2

readily available documents such as abstracts of judgment, court

issued orders, judgments and findings of fact and conclusions of

law, are meritless. The Court may take judicial notice of

matters of public record, including duly recorded documents, and

court records available to the public through the PACER system

via the internet. See Fed. R. Evid. Rule 201(b); United States

v. Howard, 381 F.3d 873, 876, fn.1 (9th Cir. 2004).

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Mr. Reed is not entitled to have the default judgment set

aside pursuant to Rule 60(b)(3). 

c. Rule 60(b)(6) - Any Other Reason.

A party who moves to set aside a default judgment under Rule

60(b)(6) bears the burden of establishing “extraordinary

circumstances” to justify disturbing the judgment. United States

v. State of Washington, 98 F.3d 1159, 1163 (9th Cir. 1996), cert.

denied, 522 U.S. 806 (1997). “[A] party merits relief under Rule

60(b)(6) if he demonstrates ‘extraordinary circumstances which

prevented him or rendered him unable to prosecute [his case] ...

The party must demonstrate both injury and circumstances beyond

his control that prevented him from proceeding with the

prosecution or defense of the action in a proper fashion.” 

Community Dental Services v. Tani, 282 F.3d 1164, 1168 (9th

Cir.2002).

For the reasons discussed above, Mr. Reed has not satisfied

this burden.2

C. CONCLUSION

For all the reasons stated above:

1. Defendant George Loren Reed’s Application for Temporary

Restraining Order to Stay Vacation of Premises and Sale of

Property is DENIED;

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2. Defendant George Loren Reed’s Motion to Set Aside

Default Judgment is DENIED; and

3. Oral Argument set for March 5, 2007 is vacated.

Dated: February 1, 2007 /S/ OLIVER W. WANGER 

United States District Judge

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