Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_07-cv-01434/USCOURTS-caed-2_07-cv-01434-7/pdf.json

Nature of Suit Code: 870
Nature of Suit: Tax Suits
Cause of Action: 28:1346 Recovery of IRS Tax

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IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF CALIFORNIA

PUONGPUN SANANIKONE,

Plaintiff, No. 2:07-cv-01434 MCE KJN

v. FINDINGS AND RECOMMENDATIONS

UNITED STATES OF AMERICA,

Defendant. 

 

UNITED STATES OF AMERICA,

Counterclaim Plaintiff, 

v.

PUONGPUN SANANIKONE,

Counterclaim Defendant, 

and

PAUL TA; JACOB INTVELD; MICHAEL 

GOODMAN; NGUYEN VO,

Additional Defendants on

Counterclaim. 

 /

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Case 2:07-cv-01434-KJM-KJN Document 81 Filed 06/15/10 Page 1 of 8
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 This action proceeds before the undersigned pursuant to Eastern District of California 1

Local Rule 302(c)(19) and 28 U.S.C. § 636(b)(1). This matter was referred to the undersigned by

an order entered February 8, 2010. (Dkt. No. 74.) 

 The United States’s counterclaims are separately alleged against each counterclaim 2

defendant. 

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Presently before the court is defendant/counterclaim plaintiff United States of

America’s (“United States”) application for default judgment against counterclaim defendant

Paul Ta (“Ta”). (Dkt. Nos. 75, 77.) Having concluded that oral argument would not assist the 1

court, the undersigned hereby takes under submission the application before the court on the

briefs and record on file. The undersigned has fully considered the briefs and record in this case

and, for the reasons stated below, will recommend that the United States’s application for default

judgment against Ta be denied without prejudice. 

I. RELEVANT FACTUAL BACKGROUND

Plaintiff Puongpun Sananikone filed a complaint against the United States

seeking, generally stated, the refund of taxes that he alleges were illegally assessed and the

abatement of a trust fund penalty that he alleges was illegally imposed by the United States

pursuant to 26 U.S.C. § 6672. (Pl.’s Compl. ¶ 3, Dkt. No. 1.) The United States subsequently

filed an answer to plaintiff’s complaint and filed counterclaims against plaintiff and four other

counterclaim defendants: Paul Ta; Jacob Intveld; Michael Goodman; and Nguyen Vo

(collectively, “counterclaim defendants”). (Answer & Counterclaims of the United States, Dkt.

No. 9.) The United States’s counterclaim against Ta seeks “to reduce to judgment certain

outstanding tax assessments made against additional counterclaim defendant Paul Ta pursuant to

26 U.S.C. § 6672.” (Id. at 10.) These assessments, and those sought to be enforced against the 2

other counterclaim defendants, relate to certain taxes withheld from the wages paid to employees

of American Steel Frame, Inc. (“ASFI”), which the United States contends the counterclaim

defendants were responsible for paying, but failed to pay, to the United States on behalf of ASFI. 

As with the other counterclaim defendants, the counterclaim against Ta sets forth

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 As to Ta, the United States seeks relief “in the amount of $479,076.62, plus statutory 3

interest accrued from the dates of assessment, and other statutory additions, as provided by law,”

as well as “fees and costs.” (Answer & Counterclaims of the United States of America at 11.)

 Counterclaim defendants Intveld and Goodman also filed counterclaims against the 4

United States. (See Dkt No. 21 at 4-6; Dkt. No. 22 at 2-4.)

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a table that includes information related to the type of tax or penalty sought, the associated tax

period, the assessment date, and the amount assessed. (Id.) There is significant overlap between 3

tax periods and related assessments that form the basis for the United States’s counterclaim

against Ta and those that form the basis of the counterclaims against the remaining counterclaim

defendants. For example, the United States seeks to reduce to judgment against multiple

counterclaim defendants the same assessments of taxes owed by ASFI that were assessed on

February 8, 2006, and March 6, 2006, which relate to the tax period of “12-31-2001.” (See id. at

5:6-7 (counterclaim against Sananikone), 7:3-4 (counterclaim against Vo), 10:26-27

(counterclaim against Ta), and 12:20-21 (counterclaim against Goodman).) This example is

indicative of the overlap inherent in the United States’s counterclaims against Ta and the other

counterclaim defendants.

All of the counterclaim defendants except for Ta have appeared in this action and

filed answers to the counterclaim. (See Dkt. Nos. 13, 21, 22, and 63.) A declaration of service 4

filed with the court demonstrates that the United States, through a process server, personally

served Ta with the summons and complaint on December 18, 2007, at 651 Bering Drive,

Apartment 1904, in Houston, Texas. (Dkt. No. 25, Doc. 25-2.) Although Ta has not yet

appeared in this action, he was deposed on September 25, 2009, in connection with this action. 

(Pitman Decl. ¶ 5 & Ex. 2, Dkt. No. 75, Doc. 75-3.)

On February 25, 2008, the Clerk of this Court entered a certificate of entry of

default against Ta. (Dkt. No. 29.) In doing so, the Clerk of Court stated that it appeared from the

record and papers on file that Ta was duly served with process yet failed to appear, plead, or

answer the counterclaim within the time allowed by law. (See id.) 

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On May 4, 2010, the United States filed an application for default judgment,

which was procedurally deficient. (See Dkt. Nos. 75, 76.) On June 2, 2010, the United States

filed a proper amended notice of its application for default judgment. (Dkt. No. 77.) It also filed

certificates of service indicating that it served Ta with its amended notice of the application for

default judgment and all of the associated moving documents by mail at 651 Bering Drive, Unit

1904, in Houston, Texas. (Dkt. No. 75, Doc. No. 75-5; Dkt. No. 77, Doc. No. 77-2.) No

response to the application is reflected on the court’s docket.

II. LEGAL STANDARDS 

Pursuant to Federal Rule of Civil Procedure 55, default may be entered against a

party against whom a judgment for affirmative relief is sought who fails to plead or otherwise

defend against the action. See Fed. R. Civ. P. 55(a). However, “[a] defendant’s default does not

automatically entitle the plaintiff to a court-ordered judgment.” PepsiCo, Inc. v. Cal. Sec. Cans,

238 F. Supp. 2d 1172, 1174 (C.D. Cal. 2002) (citing Draper v. Coombs, 792 F.2d 915, 924-25

(9th Cir. 1986)); see Fed. R. Civ. P. 55(b) (governing the entry of default judgments). Instead,

the decision to grant or deny an application for default judgment lies within the district court’s

sound discretion. Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980). In making this

determination, the court may consider the following factors: 

(1) the possibility of prejudice to the plaintiff, (2) the merits of

plaintiff’s substantive claim, (3) the sufficiency of the complaint,

(4) the sum of money at stake in the action; (5) the possibility of a

dispute concerning material facts; (6) whether the default was due

to excusable neglect, and (7) the strong policy underlying the

Federal Rules of Civil Procedure favoring decisions on the merits.

Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986). Default judgments are ordinarily

disfavored. Id. at 1472.

As a general rule, once default is entered, well-pleaded factual allegations in the

operative complaint are taken as true, except for those allegations relating to damages. 

TeleVideo Sys., Inc. v. Heidenthal, 826 F.2d 915, 917-18 (9th Cir. 1987) (per curiam) (citing

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Geddes v. United Fin. Group, 559 F.2d 557, 560 (9th Cir. 1977) (per curiam)); see also Fair

Housing of Marin v. Combs, 285 F.3d 899, 906 (9th Cir. 2002). Although well-pleaded

allegations in the complaint are admitted by a defendant’s failure to respond, “necessary facts not

contained in the pleadings, and claims which are legally insufficient, are not established by

default.” Cripps v. Life Ins. Co. of N. Am., 980 F.2d 1261, 1267 (9th Cir. 1992) (citing Danning

v. Lavine, 572 F.2d 1386, 1388 (9th Cir. 1978)); accord DIRECTV, Inc. v. Huynh, 503 F.3d 847,

854 (9th Cir. 2007) (“[A] defendant is not held to admit facts that are not well-pleaded or to

admit conclusions of law” (citation and quotation marks omitted).). A party’s default

conclusively establishes that party’s liability, although it does not establish the amount of

damages. Geddes, 559 F.2d at 560.

III. ANALYSIS

In its application for default judgment on its counterclaim against Ta, the United

States seeks relief against Ta that, at least in part, overlaps with the relief that the United States

seeks against several of the remaining counterclaims defendants. Additionally, plaintiff’s

complaint, the United States’s counterclaims, and counterclaims against the United States filed

by counterclaim defendants Intveld and Goodman all relate to the assessments made by the

United States stemming from the alleged non-payment of taxes on behalf of ASFI. None of

those claims has been resolved on the merits or otherwise. These circumstances raise concerns

regarding the grant of default judgment against one of several defendants where claims will

proceed against remaining defendants who are similarly situated to the defaulting defendant. 

With respect to multi-party cases, Federal Rule of Civil Procedure 54(b) provides

that “the court may direct entry of a final judgment as to one or more, but fewer than all, claims

or parties only if the court expressly determines that there is no just reason for delay.” The Ninth

Circuit Court of Appeals has characterized the Supreme Court’s holding in Frow v. De La Vega,

82 U.S. 552 (1872), a leading case addressing the grant of default judgments in multi-defendant

cases, as follows: 

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 In Frow, the Court stated that “a final decree on the merits against the defaulting 5

defendant alone, pending the continuance of the cause, would be incongruous and illegal.” 82

U.S. at 554. 

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The Court held in Frow that, where a complaint alleges that defendants are

jointly liable and one of them defaults, judgment should not be entered

against the defaulting defendant until the matter has been adjudicated with

regard to all defendants. It follows that if an action against the answering

defendants is decided in their favor, then the action should be dismissed

against both answering and defaulting defendants.

Nelson v. Chang (In re First T.D. & Inv., Inc.), 253 F.3d 520, 532 (9th Cir. 2001) (internal

citations and footnote omitted) (citing Frow, 82 U.S. at 554). In In re First T.D. & Inv., Inc., the 5

Court of Appeals extended the rule beyond jointly liable parties to parties that are “similarly

situated,” even if not jointly liable or jointly and severally liable. See 253 F.3d at 532; accord

Wordtech Sys., Inc. v. Integrated Network Solutions, Corp., No. 2:04-cv-01971-MCE-EFB, 2009

WL 3246612, at *2 (E.D. Cal. Oct. 6, 2009) (unpublished) (“This rule has been extended in cases

even if the defendants are not jointly liable, as long as they are similarly situated.”). 

Here, the undersigned cannot conclude that there is “no just reason for delay” such

that entry of default judgment against Ta prior to the adjudication of the counterclaims against

the remaining counterclaim defendants is appropriate. The counterclaim defendants, including

Ta, are similarly situated parties in that the United States seeks to reduce to judgment against

each counterclaim defendant tax assessments for tax liabilities of the same corporation, ASFI. 

Indeed, in many instances the United States seeks judgments against multiple counterclaim

defendants on identical ASFI tax liabilities. To the extent that the counterclaims are resolved in

the other counterclaim defendants’ favor, there is a not insignificant risk of incongruous

judgments were the court to determine at this relatively early stage of the proceedings that Ta is

liable for ASFI’s tax liabilities.

The United States’s memorandum in support of its application acknowledges that

“the general rule that default judgment should not be entered until a matter has been adjudicated

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with regard to all similarly situated defendants” might apply here. (Memo. of P. & A. in Supp. of

the United States’ Mot. for Default J. Against Counterclaim Def. Paul Ta at 3:11-14 (citing In re

First T.D. & Inv., Inc., 253 F.3d at 532-33).) Nevertheless, the United States requests, without

elaboration, that the court “grant the instant motion but reserve entry of final judgment against

Mr. Ta until the remaining claims are resolved.” (Id. at 3:14-21 (citing Armagost v. United

States, No. 4:07CV3240, 2010 WL 829178, at *2 (D. Neb. Mar. 4, 2010) (unpublished)).) The

undersigned declines this request. In Armagost, the United States moved for entry of default

judgment against a party that had failed to participate in the final pretrial conference, and it filed

its motion one month before trial. Although filed in 2007, the present case is still in the pleading

stage, and the exigencies apparently at play in Armagost are not present here. More importantly,

the undersigned is not able to deduce from the Armagost decision the precise set of facts,

including the nature of the tax liabilities and claims at issue, that drove the district court’s

decision there. Without more, the undersigned cannot conclude that the Armagost case is

sufficiently analogous to warrant application here. 

The United States may very well have a valid claim against Ta that is ultimately

appropriate for entry of default judgment. However, given the overlapping nature of the

counterclaims as to different counterclaim defendants, and the current stage of the proceedings,

the undersigned finds that there is just reason for delay. Accordingly, the undersigned will

recommend the denial of the United States’s application for default judgment, but will

recommend denial without prejudice to the refiling of the application at a more appropriate time. 

IV. CONCLUSION

For the reasons stated above, the court HEREBY RECOMMENDS that

defendant/counterclaim plaintiff’s application for default judgment against counterclaim

defendant Paul Ta (Dkt. Nos. 75, 77) be denied without prejudice.

These findings and recommendations are submitted to the United States District

Judge assigned to the case, pursuant to the provisions of 28 U.S.C. § 636(b)(l). Within fourteen

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days after being served with these findings and recommendations, any party may file written

objections with the court and serve a copy on all parties. Id.; see also Local Rule 304(b). Such a

document should be captioned “Objections to Magistrate Judge’s Findings and

Recommendations.” Any response to the objections shall be filed with the court and served on

all parties within fourteen days after service of the objections. Local Rule 304(d). Failure to file

objections within the specified time may waive the right to appeal the District Court’s order. 

Turner v. Duncan, 158 F.3d 449, 455 (9th Cir. 1998); Martinez v. Ylst, 951 F.2d 1153, 1156-57

(9th Cir. 1991). 

DATED: June 14, 2010

_____________________________________

KENDALL J. NEWMAN

UNITED STATES MAGISTRATE JUDGE

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