Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-almd-1_05-cv-00542/USCOURTS-almd-1_05-cv-00542-1/pdf.json

Parties Involved:
Timothy Joe Reeves
Counter Defendant
United States of America
Counter Claimant

Document Text:

IN THE DISTRICT COURT OF THE UNITED STATES FOR THE

MIDDLE DISTRICT OF ALABAMA, SOUTHERN DIVISION

TIMOTHY JOE REEVES, )

)

Plaintiff, )

) CIVIL ACTION NO.

v. ) 1:05cv542-MHT

) (WO) 

UNITED STATES OF AMERICA, )

)

Defendant. )

OPINION

Plaintiff Timothy Joe Reeves has brought this lawsuit

against defendant United States of America, claiming that

his plea agreement in a criminal case precludes either a

later civil assessment by the Internal Revenue Service

(“IRS”), or use of certain evidence in making that

assessment, for excise tax regarding his participation in

an illegal gambling ring. Reeves seeks a declaration that

the assessment is illegal and a refund on taxes already

paid. The government responds that its assessment is

valid and, in its counterclaim, asks this court to enter

judgment against Reeves in the amount of the assessment,

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less taxes already paid. This court’s jurisdiction is

proper pursuant to 26 U.S.C. § 6213. 

This matter is before the court on Reeves’s and the

government’s motions for summary judgment. As explained

below, the court will enter partial summary judgment in

favor of the government on the issue of tax liability and

will allow the parties to engage in mediation on whether

the assessment can still stand in light of the partialliability determination. 

I. SUMMARY-JUDGMENT STANDARD

In general, summary judgment is appropriate “if the

pleadings, depositions, answers to interrogatories, and

admissions on file, together with the affidavits, if any,

show that there is no genuine issue as to any material

fact and that the moving party is entitled to a judgment

as a matter of law.” Fed. R. Civ. P. 56(c). Under Rule

56, the party seeking summary judgment must first inform

the court of the basis for the motion. The burden then

shifts to the non-moving party to demonstrate why summary

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judgment would not be proper. Celotex Corp. v. Catrett,

477 U.S. 317, 323 (1986); see also Fitzpatrick v. City of

Atlanta, 2 F.3d 1112, 1115-17 (11th Cir. 1993) (discussing

burden-shifting under Rule 56). The court must view the

evidence in the light most favorable to the non-moving

party and draw all reasonable inferences in favor of that

party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,

475 U.S. 574, 587 (1986).

I. BACKGROUND

In February 1999, Reeves, along with numerous codefendants, was indicted on 14 counts charging him with

involvement in an illegal gambling business that received

wagers placed on primarily professional and college

football games. Reeves entered into an agreement with the

government to plead guilty to a one-count information

charging money laundering, 18 U.S.C. § 1957; to forfeit

certain property that was used as a part of the moneylaundering scheme; and to cooperate with federal

authorities in the bookmaking investigation and related

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criminal prosecutions and civil-forfeiture hearings,

including providing testimony in these proceedings. In

return, the government agreed to dismiss the indictment

against him and his wife and return certain property that

could have been subject to forfeiture. The agreement also

contained provisions limiting further prosecution of

Reeves and limiting the later use of his testimony against

him.

After Reeves pleaded guilty, and in compliance with

the plea agreement, he provided testimony against several

other members of the gambling ring. He then served 15

months in federal custody and forfeited certain property

and cash.

The IRS then initiated civil-assessment proceedings

against Reeves and determined his tax liability (including

penalties and interest) at almost two-million dollars for

excise tax generated through his participation in an

illegal gambling ring. Reeves produced his own expert’s

report, which estimated his liability at $ 159,938, and he

paid the IRS $ 100 for each month covered by the

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assessment. He also filed for refunds for each of the

periods at issue, based on his position that the plea

agreement prohibited collection of the taxes and

penalties, but the IRS refused the refunds. 

This lawsuit then ensued.

III. DISCUSSION

This case presents three questions. First, whether

Reeves’s criminal plea agreement prohibited the IRS from

assessing civil-tax penalties. Second, if not, whether

the agreement still prohibited the IRS, in making and

defending the assessment, from using Reeves's testimony

given pursuant to the agreement. Finally, if the plea

agreement does preclude the use of this testimony, whether

the assessment must nonetheless still stand. 

A. The Plea Agreement and Tax Liability 

In support of his contention that the criminal plea

agreement prohibits the later civil-tax assessment against

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him, Reeves points to the language contained in § III(G)

of the plea agreement, which provides:

“The United States further agrees that

in return for the defendant’s compliance

with the terms of this agreement there

will be no further federal criminal

prosecution of the defendant in the

Middle District of Alabama based on the

information and evidence now available

to the United States regarding the

defendant’s involvement with violations

of 18 USC § 1955, 1956, and 1957 or any

federal tax provision.”

Pl.’s M. Summ. Judg., Exhibit B, Plea Agreement (doc. no.

27-3), at 8. Because “plea bargains ... are like

contracts,” and “are governed generally by the principles

of contract law,” this court's task is to determine what

the parties’ agreement was. United States v. Rubbo, 396

F.3d 1330, 1334 (11th Cir. 2005) (internal citations and

quotations omitted). In order to do so, the court must

first look to the language of the agreement. United

States v. Copeland, 381 F.3d 1101, 1106 (11th Cir. 2004).

Here, the language of that agreement provides that

“there will be no further federal criminal prosecution of

the defendant” regarding tax violations. Plea Agreement,

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at 8 (emphasis added). The agreement is therefore

explicit and clear that the prohibition on future

proceedings against Reeves is limited to “criminal

prosecution”; the agreement says absolutely nothing about

limiting future civil proceedings, which would include

civil-tax assessments. The agreement on its face

therefore clearly does not prohibit civil proceedings,

including the civil tax-assessment against Reeves. United

States v. Barrow, 400 F.3d 109, 117-118 (2d Cir. 2005)

(“Where the language of a contract is unambiguous, the

parties’ intent is discerned from the four corners [of

their agreement].”); see also United States v. Weaver, 905

F.2d 1466, 1472 (11th Cir. 1990) (“A basic tenet of

contract law is that a written agreement which is

unambiguous on its face should be interpreted and enforced

accordingly.”).

Indeed, when the parties meant to specify that Reeves

would be immunized against civil and criminal proceedings,

they so provided in the agreement. For example, in

§ III(K)(1)(h) of the plea agreement, the parties specify

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that statements made in connection with an offer to plead

guilty “shall not be admissible in any civil or criminal

proceedings against the defendant.” Plea Agreement, at 11

(emphasis added). In addition, no evidence suggests that

the parties considered or communicated at all about civiltax matters.

However, pointing to the general proposition that the

government may not take action inconsistent with “what the

defendant reasonably understood [the government to agree

to] when he entered his guilty plea,” Arnett v. United

States, 804 F.2d 1200, 1202-03 (11th Cir. 1986), Reeves

contends that he reasonably understood his plea agreement

to foreclose the action the government takes here: the

pursuit of civil-tax penalties generated by the wagering

activities to which he pleaded guilty. Arnett's language

is not applicable here, however. 

There, the government entered into a plea agreement

that included a forfeiture provision, but, after the

execution of the agreement, sought further forfeiture.

804 F.2d at 1202. In light of the plea agreement, the

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Eleventh Circuit Court of Appeals rejected the

government's argument that it had a free hand to seek

further forfeitures where the plea agreement did not

specifically foreclose those further forfeitures. The

court noted that the rights waived by a plea agreement are

important ones and that, therefore, the government may not

act in a manner “inconsistent with what the defendant

reasonably understood when he entered his guilty plea.”

Id. at 1202-03. It found that Arnett reasonably

understood the further forfeitures to be foreclosed by the

agreement.

The court in Arnett was convinced that the defendant’s

understanding was reasonable on the basis of two factors,

both of which are absent in Reeves's case. First, the

government specifically sought forfeiture in Arnett and

provided for it in the plea agreement, and the government

then decided after the agreement that the amount it

originally sought was insufficient. In Arnett, in other

words, the government sought a second bite at the apple.

In this case, the language of the agreement cuts the other

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way; the agreement here specifically does not refer to

civil matters at all. Second, in Arnett, there was an

oral agreement that the government would not pursue

forfeiture with respect to at least some of the property

at issue. There is no suggestion on the record here that

there was a similar oral agreement regarding civil-tax

assessments.

Reeves also points to Creel v. Commissioner, 419 F.3d

1135 (11th Cir. 2005), arguing that promises the

government made to him are "inextricably intertwined" with

not pursuing civil penalties against him. Reeves argues

that, as in Creel, his plea agreement contains conditions

inextricably intertwined with a promise not to pursue

civil-tax penalties and that civil penalties thus cannot

be pursued. In Creel, the government included civil

penalties in the criminal defendant's restitution and

declared the restitution discharged after the defendant's

payment; civil penalties thereafter sought by the

government were thought by the court to be therefore

“inextricably intertwined.” 419 F.3d 1135, 1140-2

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(“Although not compelled to do so, the government

discharged Creel's civil tax liabilities as part of the

criminal case.”). Creel therefore stands for the

proposition that the government cannot ‘undischarge’ a

debt. There was no similar provision in Reeves's plea

agreement that provided for satisfaction of a civil-tax

liability; rather, Reeves's plea agreement does not

mention civil-tax liability at all. There is no

interwinement between any of the provisions of his

criminal plea agreement and the government's later civil

pursuit of Reeves. Creel thus does not support Reeves's

position. 

To support his argument that he reasonably understood

civil penalties to be foreclosed, Reeves also points to

the affidavit of Assistant United States Attorney Ashton

Holmes Ott, who participated in drafting the plea

agreement. Ott states in her affidavit that she intended

the plea agreement to be a global settlement of all

liability, criminal and civil. However, Ott's unexpressed

intent that there should have been a global settlement

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cannot render Reeve's understanding reasonable when that

understanding is contradicted by the explicit and clear

language in the agreement. Similarly, as to Reeves's own

affidavit, which he submits to confirm that he understood

the settlement to be similarly global, his understanding

about his plea agreement, while perhaps real, must still

be reasonable, and the understanding he posits cannot be

reasonable in the face of the plain language of the

agreement. 

B. Prohibition on Use of Testimony

Reeves also argues that, in making the civil-tax

assessment against him, the government was prohibited from

using the testimony he gave in the criminal case and

related proceedings. He points to § III(C)(2) of the plea

agreement, entitled “Cooperation Agreement,” which

provides that:

“Provided the defendant satisfies the

terms of this plea agreement, any

information that he truthfully discloses

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to the government during the course of

his cooperation, concerning related

offenses, will not be used against him,

directly or indirectly. The defendant

understands that this agreement does not

bar his prosecution for capital

felonies, perjury, false statements, and

obstruction of justice.” 

Plea Agreement, at 6. Reeves points specifically to the

language stating that “any information that he truthfully

discloses to the government during the course of his

cooperation, concerning related offenses, will not be used

against him, directly or indirectly.” The government

admits that, in making the civil-tax assessment, the IRS

used testimony Reeves provided in the criminal and related

proceedings; the government argues, however, that the word

“offenses” in the phrase “concerning related offenses”

should be understood to mean only criminal offenses, see

Black's Law Dictionary (8th ed. 2004), and thus prohibits

the use of Reeves’s testimony in only criminal

proceedings, not civil matters, such as civil-tax

assessments. 

Case 1:05-cv-00542-MHT-WC Document 57 Filed 08/08/07 Page 13 of 17
*Moreover, even if the phrase “concerning related

offenses” could be viewed as restricting the breadth of

the protection the agreement affords Reeves’s testimony,

summary judgment in favor of the government would still

(continued...)

14

Reeves has the better argument. The term “concerning

related offenses” clearly modifies only the breadth of the

testimony that is protected by the agreement. The

testimony protected is “any information that he truthfully

discloses to the government during the course of his

cooperation, concerning related offenses.” The breadth of

the protection of that testimony, in contrast, is found in

the remainder of the sentence: the testimony “will not be

used against him, directly or indirectly.” Nothing in

this phrase limits the protection or prohibition to

criminal proceedings; indeed, the prohibition is openended and broad, extending to both direct and indirect

use. Because the prohibition is so open-ended and broad,

the court must hold that a reasonable factfinder would

have to conclude that the protection extends to all

related proceedings, criminal and civil, including civiltax assessments.*

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(...continued)

not be proper on this aspect of the case. Like the term

“prosecution,” depending on the context, an “offense” can

be either civil or criminal. See, e.g., United States v.

Stewart, 489 U.S. 353, 365 n.5 (1989) (“Not all of those

countries distinguish between civil and criminal

prosecutions for tax offenses as does the United

States.”); Louis v. Comm'r of Internal Revenue, 170 F.3d

1232, 1234 (9th Cir. 1999) (“This court recently held

additions to tax for fraud to be a civil remedy, not a

criminal punishment, and therefore beyond the scope of

the Double Jeopardy Clause, which prohibits only multiple

criminal punishments for the same offense.”) (emphasis in

original); 28 U.S.C. § 6672 (addressing civil penalties,

and limiting application of other sections “for any

offense to which this section is applicable.”). In the

context of the term “prosecution,” the parties stated in

the agreement that they were referring to criminal

prosecution; there is no such similar limitation with

respect to the term “offenses.” Thus, the government's

argument that this provision unambiguously permits it to

use the deposition testimony in the civil prosecution

context is unavailing. See Copeland, 381 F.3d at 1106

(finding that, where the language of an agreement simply

does not address the situation at hand, there is

ambiguity). Reading this language against the

government, this court cannot agree with the government

that, as a matter of law, Reeves’s understanding is

unreasonable.

Also, because the court nonetheless finds that the

language (the testimony “will not be used against him,

directly or indirectly”) prohibits the government from

using Reeves's testimony, the court need not examine

Reeves's alternative contention that language in

§ III(K)(1)(h) of the plea agreement protects his

testimony. That section provides, in relevant part,

(continued...)

15

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(...continued)

that:

“The defendant, before entering a plea

of guilty to Count One of the

information currently pending against

him advises the Court that ... [he]

understands and has been advised that

evidence of a guilty plea, later

withdrawn or an offer to plead guilty to

the crime charged in the Information

herein, or of statements made in

connection with and relevant to said

plea or offer to plead, shall not be

admissible in any civil or criminal

proceedings against the defendant.”

Plea Agreement, at 8-11.

16

C. Validity of the Assessment

Having made a partial-liability determination--that

is, that the plea agreement allowed the IRS to assess

civil-penalties against Reeves, albeit without using the

testimony he gave pursuit to the agreement--the court now

turns to the validity of the assessment. The parties have

asked that, should the court make this finding, they be

allowed to engage in mediation on the issue of the

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validity of the assessment. The court will grant their request.

An appropriate order will be entered.

DONE, this the 8th day of August, 2007.

_____________________________ /s/ Myron H. Thompson

UNITED STATES DISTRICT JUDGE

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