Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_07-cv-02184/USCOURTS-azd-2_07-cv-02184-3/pdf.json

Nature of Suit Code: 870
Nature of Suit: Tax Suits
Cause of Action: 26:7402 IRS: Petition to Enforce IRS Summons

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IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

United States of America, 

Petitioner, 

vs.

William R. Fitzpatrick, Jr., 

Respondent. 

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No. CIV-07-2184-PHX-RCB

ORDER

 Currently pending before the court is a motion by petitioner,

the United States of America, seeking compensatory sanctions

against respondent, William R. Fitzpatrick, Jr. (doc. 48). This

motion arises out of an ongoing investigation by the Internal

Revenue Service (“IRS”) as to “whether there was fraud, malfeasance

or misrepresentations of material fact [as] to the closing

agreement . . . entered into between the IRS and [respondent]

regarding his tax liability for 2001.” Decl’n of [IRS] Revenue

Agent Elizabeth A. Marriaga (doc. 50) at 1-2, ¶ 2. 

 The United States is seeking sanctions totaling $9,058.52 – 

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$7,392.83 in attorney’s fees and $1,665.69 in costs. Respondent

argues that the court should deny this motion in its entirety. 

Alternatively, he argues that the court should deny this motion

insofar as the United States is seeking attorney’s fees, but grant

it as to costs. See Resp. (doc. 52) at 6. For the reasons set

forth below, the court grants the United States’ motion for

sanctions, but not in the requested amount.

Background

 The court assumes familiarity with the fairly prolonged

history of this IRS enforcement action. When respondent did not

fully comply with this court’s enforcement order, the United States

filed a motion for contempt. Following an evidentiary hearing this

court found respondent in contempt. United States v. Fitzpatrick,

2008 WL 853055, at *9 (D.Ariz. Feb. 4, 2008). A fairly detailed

review of Fitzpatrick will help place the present motion in context

however. 

 In Fitzpatrick, the court engaged in the “three-step analysis”

which governs civil contempt proceedings based upon a witness’

asserted memory loss. See id. at *7 - *8. Although the

“respondent did not have sudden recall during the hearing” as to

how he calculated the $3,855,987.00 gross sales price for the

“CARDS” transaction at issue, the court found respondent’s

testimony on that point “troubling” in two respects. Id. at *8. 

First, “in response to questioning by his own counsel and then in

response to a direct inquiry from the court,” respondent indicated

that “given enough time and documentation, he ‘might be able’ to

reconstruct how he arrived at th[at] . . . gross sales price.” Id.

(citations omitted). The court found “[e]qually troubling . . .

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the fact that evidently at no time since the IRS served the summons

on March 27, 2006, [did] respondent ma[k]e any effort to determine

how he calculated that sales price.” Id.

 Ultimately the court found that plaintiff did not, “as he was

required to do, [take] all reasonable steps in his power to comply

with the IRS’ request as to how he calculated the gross sales

prices.” Id. (internal quotation marks and citation omitted). 

Based upon his “overall demeanor during the [contempt] hearing,

including his ability to fairly vividly recall far less

consequential matters,” the court was “persuade[d]” that

respondent’s “claimed inability to remember how he calculated the

gross sale price . . . [wa]s not entirely credible.” Id. The

court thus concluded that respondent did not “answer[] to the best

of his ability the IRS’ inquiry as to th[at] calculation.” Id. 

 Respondent’s claimed memory loss “r[a]ng[] hollow[]” to the

court for an additional reason. Respondent testified “that as a

certified public accountant he has [a] ‘pretty good clue’ as to

what is necessary in preparing tax returns, and that he likes to

think that he is ‘pretty knowledgeable’ in terms of tax law and tax

reporting requirements.” Id. (citations omitted). The court was

somewhat incredulous that “[d]espite the fact that relatively

speaking respondent is a fairly sophisticated tax payer and

preparer of tax returns, conveniently he now does not remember[]

how he calculated what is undisputably a significant entry in

connection with his 2001 tax return.” Id. For these reasons, the

court found “respondent in contempt for failure to respond to the

IRS’ inquiry as to how he calculated the $3,855,978.00 gross sales

price on” the CARDS transaction. Id. 

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 In considering how to insure respondent’s compliance with the

IRS summons and enforcement order, the court rejected outright the

United States’ argument for coercive incarceration. See id. at *9. 

The court also found that compensatory sanctions were not “proper 

. . . because, inter alia, there [wa]s no proof of actual losses

sustained as a result of the contumacy, . . . ; and the IRS did not

suggest . . . that it had any such proof.” Id. (internal quotation

marks, citations and emphasis omitted). The court did leave open

the possibility of contempt sanctions at a later date, however, by

adding that “[e]ven if the IRS had made such a suggestion, . . . ,

given the circumscribed nature of [its] contempt finding, it would

not order compensatory sanctions at this juncture.” Id. (emphasis

added). Although it declined to monetarily sanction respondent for

his contempt, the court did order him to explain to the IRS how he

calculated the gross sales price, setting forth a time frame for

such compliance. The court expressly retained jurisdiction “for

the purpose of ensuring that respondent has fully complied with

th[at] order, as well as the underlying enforcement order . . . and

the underlying summons[.]” Id. at *10.

 Complying with that contempt order, on March 3, 2008,

respondent provided a declaration to the IRS explaining how he

calculated the gross sales price. See Mot. (doc. 48) at 2, ¶ 5;

see also Marriaga Decl’n (doc. 50) at 2, ¶ 3. Several days later,

in an interview with an IRS agent and IRS Chief Counsel Attorney,

respondent answered questions as to his calculations and that

declaration. Id.; see also Marriaga Decl’n (doc. 50) at 2, ¶ 4. 

Despite being served with the IRS summons on March 27, 2006, it was

not until nearly two years later that respondent, for “the first

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time[,] . . . provided the IRS with an explanation [as to] how he

calculated the gross sales price he entered into line 10(d) of his

2001 [IRS] Form 4797.” Id. at ¶ 6; see also Marriaga Decl’n(doc.

50) at 2, ¶ 5. 

 Based upon this sequence of events, the United States contends

that the contempt hearing was “necessary to make respondent comply”

with the court’s enforcement order. Memo. (doc. 51) at 3. 

Further, the United States contends that “[a]s a result of these

contempt proceedings, [it] [has] incurred $9,058.52 in attorney’s

fees and costs.” Mot. (doc. 48) at ¶ 7. Basically, it is

respondent’s position that the United States made “no effort . . .

to reduce, if not eliminate the claimed compensatory sanctions[.]” 

Resp. (doc. 52) at 5, ¶ 3. Respondent strongly implies that no

contempt hearing would have been necessary if the United States had

made “any real effort . . . to resolve the issues between the

parties.” Id. Therefore, in the exercise of its discretion, the

court should decline to award sanctions at all; but if it is

inclined to make such an award, it should be limited to the United

States’ costs.

Discussion

 “Sanctions for civil contempt may be imposed to coerce

obedience to a court order, or to compensate the party pursuing the

contempt action for injuries resulting from the contemptuous

behavior, or both.” General Signal Corp. v. Donallco, Inc., 787

F.2d 1376, 1379 (9th Cir. 1986) (citations omitted). Here, the

United States is proceeding under the second theory; it is seeking

compensation for “actual losses sustained as a result of the

contumacy.” Id. (internal quotation marks and citation omitted)

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(emphasis added by Ninth Circuit). Those “actual losses” consist

of the United States’ attorney’s fees and costs incurred as a

result of the contempt proceeding.

 As noted earlier, the parties disagree as to the propriety of

awarding sanctions in the first place. The court agrees with the

United States, however, that the contempt hearing was “necessary to

make respondent comply” with the enforcement order. Memo. (doc.

51) at 3. As alluded to above, and fully set forth in Fitzpatrick,

respondent has a prolonged history of recalcitrance in terms of

complying with the IRS summons served upon him on March 27, 2006. 

Perhaps most telling is that after the contempt finding, respondent

explained how he calculated the gross sales price on the CARDS

transaction, even though he had previously claimed that he did not

recall how he performed that calculation. Cf. United States v.

Blaine, 2006 WL 2864894, at *2 (D.Hawai’i May 5, 2006) (attorney’s

fees and costs “justified” for civil contempt where “[r]espondents

did not begin to comply with” IRS enforcement order “until after

[the United States] Filed a Motion for contempt[]”), adopted in

part, modified on other grounds, 2006 WL 2864890 (D.Hawai’i Aug.

21, 2006). This conduct confirms the court’s conclusion that

respondent was not entirely forthcoming during the contempt

hearing. Indeed, evidently that contempt finding greatly

contributed to respondent’s subsequent ability to recall how he

calculated the gross sales price. 

 Significantly, it is long established that “‘[t]he absence of

wilfulness does not relieve [one] from civil contempt.’” Donovan v.

Burlington Northern, Inc., 781 F.2d 680, 684 (9th Cir. 1986)

(quoting McComb v. Jacksonville Paper Co., 336 U.S. 187, 191, 69

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S.Ct. 497, 499, 93 L.Ed. 599 (1949)). Moreover, “civil contempt

need not be willful to justify a discretionary award of fees and

expenses.” Id. (internal quotation marks and citation omitted). 

This is so because in contrast to criminal contempt, the purpose of

civil contempt is remedial. See Perry v. O’Donnell, 759 F.2d 702,

705 (9th Cir. 1985) (citing Falstaff Brewing Corp. v. Miller

Brewing Co., 702 F.2d 779, 778 (9th Cir. 1983) (one purpose of

civil contempt is “to compensate the contemnor’s adversary for the

injuries which result from the noncompliance”)). So, while

respondent Fitzpatrick may not have willingly delayed his

compliance with the IRS summons, that does not preclude an award of

attorney’s fees and costs in this case. Thus, considering all of

the circumstances, in the exercise of its discretion, the court

finds that an award of attorney’s fees and costs is appropriate

here. See Harcourt Brace v. Multistate Legal Studies, 26 F.3d 948,

953 (9th Cir. 1994) (citation omitted) (“An award of attorney’s

fees for civil contempt is within the discretion of the district

court.”) Having found that respondent’s conduct is sanctionable,

the next issue is the amount of those sanctions.

I. Attorney’s Fees

 In evaluating a motion for an attorney’s fee award for civil

contempt, the Ninth Circuit has “suggested” that courts “should 

. . . consider” twelve factors, known as the Kerr factors based

upon the case of the same name. See Donallco, 787 F.2d at 1380

(citing Kerr v. Screen Extras Guild, 526 F.2d 67, 70 (9th Cir.

1975)). Those factors include:

 (1) the time and labor required, (2) the novelty 

and difficulty of the questions involved, (3) the 

skill requisite to perform the legal services properly, 

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(4) the preclusion of other employment by the attorney 

due to acceptance of the case, (5) the customary fee, 

(6) whether the fee is fixed or contingent, (7) time 

limitations imposed by the client or the circumstances, 

(8) the amount involved and the results obtained, (9) 

the experience, reputation, and ability of the attorneys,

(10) the ‘undesirability’ of the case, (11) the nature 

and length of the professional relationship with the

client, and (12) awards in similar cases.

Kerr, 526 F.2d at 70. Failure to conduct an “inquiry into the

appropriateness of the fees requested in light of the Kerr factors”

is grounds for remand. Donallco, 787 F.2d at 1381 (citation

omitted). 

 Goud P. Maragani, a trial attorney with the Tax Division of

the United States Department of Justice (“DOJ”), expended 9 hours

preparing the contempt motion, and an additional 34.5 hours

preparing for and attending the evidentiary hearing. Maragani

Decl’n (doc. 49) at 2, ¶ 4(a). These hours do not reflect time

expended by DOJ supervisors and IRS personnel who also worked on

this matter. Id. Considering the pertinent Kerr factors, the

court finds that the requested fee award is both warranted and

reasonable, although, as fully explained below, the court will make

a slight adjustment in the hourly rate sought. 

 If the court decides, as it has, to award attorney’s fees,

respondent challenges only the hourly rate. The United States

generally asserts that “[a] reasonable hourly rate” is the

“prevailing market rate[] in the relevant community.” Id.

(internal quotation marks and citations omitted). Rather than

incurring the expense of experts to testify as to what that rate

is, however, the United States is requesting an hourly rate

calculated in accordance with the Equal Access to Justice Act

(“EAJA”), 28 U.S.C. § 412(d)(2)(A). See id. (citations omitted);

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see also Reply (doc. 54) at 3. More specifically, the United

States is seeking the EAJA hourly rate of $125 adjusted for

inflation, which by its calculation is $169.95. Id. at 3, ¶ 4(a). 

Employing that hourly rate, and based upon a total of 43.5 hours of

legal services provided in connection with this contempt matter,

the United States seeks a total of $7,392.83 in attorney’s fees. 

 That amount “appear[s] to be overstated[]” according to the

respondent because in his view fees should be “based upon the

government attorney’s pay grade.” Resp. (doc. 52) at 6:3-8

(citations omitted). Thus respondent urges this court to order the

United States to recalculate the amount sought in accordance with

Mr. Maragani’s pay grade. Id. 

 In making this argument, respondent relies upon a 1981 Rhode

Island District Court case, United States v. Tivian Laboratories,

Inc., 1981 WL 1774 (D.R.I. Jan. 28, 1981). With no analysis, the

Tivian court required government attorneys to file affidavits

“detail[ing] the number of hours expended and the grade level at

which such hours were worked.” Id. at *3 (citing United States v.

Greyhound Corp., 370 F.Supp. 881 (N.D.Ill. 1974)) (emphasis added). 

The Greyhound court similarly offered no legal analysis for

requiring affidavits including government attorneys’ “grade level”

before awarding fees for contempt. See Greyhound, 370 F.Supp. at

886. 

 The court declines to adopt this “grade level” approach for

determining the hourly rate for the government attorney in this

case. The court reaches this conclusion based upon the thorough

and persuasive analysis in Harris v. Marsh, 123 F.R.D. 204, 226-228

(E.D.No. Cal. 1988), rev’d in part on other grounds, 914 F.2d 525

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(4th Cir. 1990). The court agrees with Harris that the “‘salary

only’ proposal [is] unrealistic in terms of the actual costs

expended by the government in defending litigation.” Id. at 227. 

In particular, “[u]nder th[at] . . . formula, the government does

not recoup its true costs of litigation which, like private

counsel, include secretarial and support staff expenses, supplies,

materials, travel, phone calls, etc.” Id.; see also NLRB v. Local

3, Intern. Broth. Of Elec. Workers, 471 F.3d 399, 407 (2nd Cir.

2006) (“[B]ecause government attorneys receive a fixed salary and

do not bill a client for their services, a proportionate share of

attorneys’ salaries does not necessarily correlate to expenses

actually incurred in pursuing a given case.”). Indeed, in the

present case, the United States is quick to point out that, among

other things, it is not seeking “compensat[ion] for every cost it

incurred in pursuing these contempt proceedings[.]” Reply (doc. 54)

at 3, n. 2. In any event, the fact “that pursuing a contempt

action imposes additional costs on the government in the form of

foregone opportunities to pursue other cases according to its

statutory duty[,]” is another compelling reason for not adopting

the grade level hourly rate here. See NLRB, 471 F.3d at 407. 

 Instead of applying attorney Maragani’s “grade level” hourly

rate, the court will apply the EAJA hourly rate, adjusted for

inflation, as the United States urges. See U.S. v. City of

Jackson, Miss., 359 F.3d 727, 734 (5th Cir. 2004) (in contempt

proceeding, EAJA hourly rate of $125 was reasonable for government

attorneys). As noted above though, the court disagrees with the

United States’ calculation of that rate. Pursuant to the EAJA,

“unless the court determines that an increase in the cost of living

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1 A fee request at the 2008 hourly rate would have meant $220.45 more in

fees being awarded herein. That amount represents the difference between the 2007

and 2008 hourly rates for the 34.5 hours of services rendered in 2998. The 2008

hourly rate,, adjusted for inflation, is $172.85 ($125 x 215.303 (the average

annual CPI-U for 2008 according to the U.S. Dept. Of Lab., Bureau of Lab.

Statistics, Consumer Price Index: All Urban Customers,

ftp:/bls.gov/pub/special.requests/cpi/cpiai.txt)/155.7). So, if the United States

had sought fees at the 2008 hourly rate, then it would have been awarded $5,963.32

for services performed in that year. Instead, it is being awarded fees of

$5,742.87 which is based upon 2007 hourly rates, regardless of in which year those

services were rendered. 

2 See U.S. Dept. Of Lab., Bureau of Lab. Statistics, Consumer Price

Index: All Urban Customers, ftp:/bls.gov/pub/special.requests/cpi/cpiai.txt.

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. . . , justifies a higher fee[,]” the maximum hourly rate under

that statute is $125.00. 28 U.S.C. § 2413(d)(2)(A) (West 2006). 

To compute the hourly rate under the EAJA, adjusted for cost-ofliving (“COLA”) increases, the court applies the formula enunciated

in Thangaraja v. Gonzales,428 F.3d 870, 876-77 (9th Cir. 2005). 

See Ninth Circuit Rule 39-1.6, Advisory Committee Note thereto. 

“Appropriate [COLA] increases are calculated by multiplying the

$125 statutory rate by the annual average consumer price index

figure for all urban consumers (“CPI-U”) for the years in which

counsel’s work was performed, and then dividing by the CPI-U figure

for March 1996, the effective date of EAJA’s $125 statutory rate.” 

Thangaraja, 428 F.3d at 876-77 (citation omitted). 

 Attorney Maragani performed legal services in 2007 and 2008,

but he did not differentiate between those years in requesting a

COLA. Therefore, as the United States requests, the court will

award attorney’s fees at the 2007 rate only.1 The hourly rate for

2007 is not $169.95 as the United States indicates, however. See

Maragani Decl’n (doc. 49) at 3, ¶ 4(a). Rather, under the

Thangaraja formula, the 2007 EAJA hourly rate adjusted for

inflation is $166.46 ($125 x 207.342 (the average annual CPI-U for

20072

)/155.7). Based upon that rate, the court finds that the

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United States is entitled to $7241.01 for the 43.5 hours of legal

services it rendered in connection with this contempt matter.

II. Costs

 The United States also is seeking $1,665.69 in travel costs. 

Those costs are detailed in the supporting declaration of attorney

Maragani and copies of his travel receipts included therewith. See

Maragani Decl’n (doc. 49), and exh. A thereto. The United States

incurred those costs in connection with attorney Maragani’s travel

from Washington, D.C. to Phoenix, Arizona, for the January 8, 2008,

contempt hearing. Originally that hearing was scheduled for

October 15, 2007, and Mr. Maragani also flew to Phoenix to attend

that hearing. Reply (doc. 54) at 3 n.2. However, the hearing was

postponed because respondent’s attorney had been in an accident. 

Id. The United States did not object to that postponement, even

though respondent’s attorney had co-counsel who arguably could have

appeared on the originally scheduled date. Id. In any event, the

United States is not seeking costs incurred with Mr. Maragani’s

first trip to Phoenix. Id.

 Having reviewed attorney Maragani’s declaration as to costs

and his supporting documentation, the court finds that such costs

are reasonable, and again notes that if the court grants this

motion, respondent has no objection to the cost aspect. In finding

these costs reasonable, the court is taking into account that the

United States is not seeking costs associated with the postponed

contempt hearing. Accordingly, the court GRANTS the United States’

motion insofar as it is seeking costs in the amount of $1,665.69

incurred in connection with the United States’ contempt motion.

 To conclude, for the reasons set forth herein, IT IS ORDERED

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that the “United States’ Motion for Compensatory Sanctions” (doc.

48) is GRANTED;

 IT IS FURTHER ORDERED that within thirty (30) days of the

filing of this Order, respondent, William R. Fitzpatrick, Jr.,

shall make payment to the United States a total of $8,906.70, which

represents $7,241.01 in attorney’s fees and $1,665.69 in costs; and

 IT IS FINALLY ORDERED that the court shall retain

jurisdiction over this matter for the purpose of ensuring that

respondent has fully complied with this order. 

 DATED this 26th day of February, 2009.

 

Copies to counsel of record

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