Court Opinion

ID: 6105313
Source: CourtListenerOpinion
Date Created: 2022-01-20 19:01:34.790976+00
Date Added: 2024-06-11T08:53:47.879086
License: Public Domain

USCA11 Case: 21-10612    Date Filed: 01/20/2022   Page: 1 of 12

                                         [DO NOT PUBLISH]

                          In the

         United States Court of Appeals
               For the Eleventh Circuit

                 ____________________

                        No. 21-10612
                 Non-Argument Calendar
                 ____________________

UNITED STATES OF AMERICA,
                                             Plaintiff-Appellee,
versus
LENA D. COTTON,
PROFESSIONAL ACCOUNTING LDC, LLC,

                                       Defendants-Appellants.
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2                      Opinion of the Court               21-10612

                    ____________________

           Appeal from the United States District Court
               for the Southern District of Florida
              D.C. Docket No. 9:17-cv-80518-DMM
                    ____________________

Before LAGOA, BRASHER, and ANDERSON, Circuit Judges.

PER CURIAM:

       Appellants, Lena Cotton and Professional Accounting
LDC, LLC (“PALDC”), appeal the district court’s permanent in-
junction enjoining them from, among other things, preparing
federal tax returns. The district court cited two sources of author-
ity for its power to issue this injunction: (1) the court’s inherent
power to enforce its orders through a finding of civil contempt
and (2) the court’s statutory authority under I.R.C. §§ 7402(a),
7407, and 7408. Appellants argue on appeal that the district court
erred in two ways. First, it erred by finding Appellants in con-
tempt because evidence showed that they had made good faith
efforts to substantially comply with the district court’s orders.
Second, it abused its discretion by issuing a broad permanent in-
junction that barred them from preparing tax returns.
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20-14018                Opinion of the Court                           3

                                   I.
       District courts have “inherent power to enforce compli-
ance with their lawful orders through civil contempt.” Citron-
elle–Mobile Gathering, Inc. v. Watkins, 943 F.2d 1297, 1301 (11th
Cir. 1991). We review a district court’s finding of civil contempt
for abuse of discretion. Id. We also review a district court’s deci-
sion to grant an injunction and the scope of the injunction for
abuse of discretion. Angel Flight of Ga., Inc. v. Angel Flight Am.,
Inc., 522 F.3d 1200, 1208 (11th Cir. 2008). “Determinations of law
are reviewed de novo, while the findings of fact that support an
injunction are reviewed for clear error.” SEC v. ETS Payphones,
Inc., 408 F.3d 727, 731 (11th Cir. 2005).
        A district court abuses its discretion if it applies an incorrect
legal standard, applies the law in an unreasonable or incorrect
manner, follows improper procedures in making the determina-
tion, or makes findings of fact that are clearly erroneous. Klay v.
United Healthgroup, Inc., 376 F.3d 1092, 1096 (11th Cir. 2004); see
also McMahan v. Toto, 256 F.3d 1120, 1128 (11th Cir. 2001)
(“[T]he abuse of discretion standard of review recognizes
that . . . there is a range of choice for the district court and so long
as its decision does not amount to a clear error of judgment we
will not reverse even if we would have gone the other way had
the choice been ours to make.”). An abuse of discretion may also
occur when “the district court imposes some harm, disadvantage,
or restriction upon someone that is unnecessarily broad or does
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4                      Opinion of the Court                 21-10612

not result in any offsetting gain to anyone else or society at large.”
Klay, 376 F.3d at 1096.
       We may affirm the district court’s injunction on any
ground that appears in the record. Mitsubishi Int’l Corp. v. Car-
dinal Textile Sales, Inc., 14 F.3d 1507, 1517 (11th Cir. 1994) (citing
United States v. Arthur Young & Co., 465 U.S. 805, 814 n.12, 104
S. Ct. 1495, 1501 n.12 (1984)). Here, the district court cited two
bases for its authority—its inherent contempt power and its statu-
tory authority under the Internal Revenue Code—and we may
affirm on either ground.
       Because we write only for the parties who are familiar with
the facts and proceedings in this case, we relate only those facts
necessary to understand our decision.
                                 II.
        Appellants’ first argument on appeal is that the district
court erred by finding them in contempt. A court may find a par-
ty in contempt “only upon a showing that the alleged contempt is
clear and convincing.” Ga. Power Co. v. NLRB, 484 F.3d 1288,
1291 (11th Cir. 2007). “The clear and convincing evidence must
establish that: (1) the allegedly violated order was valid and law-
ful; (2) the order was clear and unambiguous; and (3) the alleged
violator had the ability to comply with the order.” Id. Here, Ap-
pellants concede that the district court’s injunction is (1) valid and
lawful and (2) clear and unambiguous, and they only dispute their
ability to comply. A party may “demonstrate an inability to com-
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20-14018               Opinion of the Court                        5

ply only by showing that they have made ‘in good faith all rea-
sonable efforts to comply.’” Citronelle–Mobile Gathering, Inc.,
943 F.2d at 1301 (quoting United States v. Ryan, 402 U.S. 530, 534,
91 S. Ct. 1580, 1583 (1971)).
        Appellants assert that they substantially complied with the
district court’s orders; that, while some of their actions may have
been imprudent, they acted in good faith; and that the district
court improperly held them accountable for the actions of inde-
pendent third parties (the Non-Parties). However, our review of
the district court’s decision (Dist. Ct. Doc. 156), the briefs of the
parties, and the record evidence persuades us that Appellants’ ar-
guments are wholly without merit.
       It is true, and the district court so found, that Appellants
did substantially comply with discrete parts of the district court’s
prior orders. However, after a comprehensive discussion of the
evidence, the district court found:
      In addition to attempting to circumvent my prior Orders
      through Non-Parties by, in effect, employing and oversee-
      ing Non-Parties and then retaining a great deal of the prof-
      its on the returns prepared by them, Defendants commit-
      ted other violations of my prior Orders [then listing same].
Dist. Ct. Doc. 156 at 11. Earlier in the decision, the district court
had previewed this finding:
      Based on the testimony at the hearing and my credibility
      assessments of the same, I find that, since March 4, 2019,
      Defendants, individually and through Non-Parties, have at-
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6                          Opinion of the Court                       21-10612

        tempted to circumvent the terms of the Injunction and the
        March 4, 2019 and August 15, 2019 Orders and have, in
        some cases, violated the restrictions placed upon them by
        those Orders . . . .
Dist. Ct. Doc. 156 at 4. While Appellants’ briefs on appeal point
to a few provisions of the Orders with which they arguably did
substantially comply, and while they assert in conclusory fashion
that they did not control or supervise the Non-Parties and other-
wise acted in good faith, the Appellants fall far short of persuading
us that the district court’s findings were clearly erroneous.
        In sum, we readily reject Appellants’ first argument that
the district court erred by finding them in contempt. 1

1
  Moreover, as noted in the Government’s response brief, the district court
relied not only on its inherent powers to enforce its orders through a finding
of civil contempt, but also on its statutory authority under I.R.C. § 7402(a).
We agree that the district court also had statutory authority under § 7402(a)
to issue the instant injunction, and we agree that § 7402(a) constitutes a sepa-
rate and independent ground for affirmance. Section 7402(a) of the Internal
Revenue Code grants district courts broad authority to issue injunctions,
among other remedies, “as may be necessary or appropriate for the en-
forcement of the internal revenue laws.” See United States v. Askins & Mil-
ler Orthopaedics, P.A., 924 F.3d 1348, 1354 (11th Cir. 2019) (“Section 7402(a)
of the Internal Revenue Code grants federal district courts an array of pow-
ers to aid in enforcing the tax laws . . . .”); United States v. Ernst & Whinney,
735 F.2d 1296, 1300 (11th Cir. 1984) (“The language of § 7402(a) encompasses
a broad range of powers necessary to compel compliance with the tax
laws.”). A district court may issue an injunction under § 7402(a) without
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20-14018                  Opinion of the Court                               7

                                     III.
       Appellants’ second argument on appeal is that the district
court abused its discretion by issuing an overbroad injunction that
permanently enjoined them from preparing federal tax returns.
We review both the district court’s decision to grant an injunction
and the scope of the injunction for abuse of discretion. Angel
Flight, 522 F.3d at 1208. We review the district court’s determi-
nations of law de novo, and its findings of fact underlying the in-
junction for clear error. ETS Payphones, 408 F.3d at 731. Here,
we cannot conclude that the district court abused its discretion by

finding that the enjoined party “has violated a particular Internal Revenue
Code section.” Ernst & Whinney, 735 F.2d at 1300. A district court’s “deci-
sion to issue an injunction under § 7402(a) is governed by the traditional fac-
tors shaping the district court’s use of the equitable remedy.” Id. at 1301.
The party requesting a permanent injunction must prove (1) irreparable inju-
ry, (2) inadequate remedies at law, (3) the equitable remedy is warranted by
the balance of hardships between the plaintiff and defendant, and (4) the
permanent injunction would not disserve the public interest. Angel Flight,
522 F.3d at 1208.
Here, the Appellants do not dispute that § 7402(a) authorized the district
court to issue the permanent injunction. Rather, Appellants argue that the
district court relied primarily on its contempt power when it issued the per-
manent injunction and that a narrower injunction would be more appropri-
ate because contempt power is intended only to ensure compliance, not to
punish good faith compliance efforts that fall short. We address and reject
this argument of Appellants as part of our discussion in the next section
which addresses Appellants’ second argument.
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8                      Opinion of the Court                 21-10612

issuing the injunction or by deciding to bar Appellants perma-
nently from preparing federal tax returns.
       The district court thoroughly explained how the perma-
nent injunction satisfied the four equitable principles that govern
injunctions under I.R.C. § 7402(a). First, it found that the Gov-
ernment has shown irreparable harm because Defendants had re-
peatedly violated the district court’s prior orders, causing financial
harm to the U.S. Treasury and undermining public trust in the tax
system. Absent a permanent injunction, the Government would
be forced to expend further resources to monitor Appellants.
Second, Appellants had already violated two prior court orders,
showing that a permanent injunction is needed because other
remedies had been inadequate. Third, the balance of hardships
weighs in favor of the Government. Appellant Cotton has a sepa-
rate job in the healthcare industry that the injunction does not af-
fect. Additionally, Appellants had every opportunity to comply
with the district court’s prior orders. Notably, the third injunc-
tion the district court issued warned Appellants that if they violat-
ed that order, “the remedy shall be a permanent ban on tax return
preparation.” Fourth, a permanent injunction serves the public
interest because Appellants’ conduct negatively impacted the fed-
eral tax system.
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20-14018                   Opinion of the Court                                9

        Appellants do not expressly contest the district court’s
weighing or consideration of these equitable factors. 2 Instead,
they assert three errors: (1) that the permanent injunction could
have been narrower pursuant to I.R.C. § 7407(b); (2) that the
permanent injunction does not give Appellants an opportunity to
purge their prior violations; and (3) that the injunction was overly
broad in requiring Appellants to surrender their preparer tax iden-
tification numbers (“PTIN”) and their electronic filing identifica-
tion numbers (“EFIN”). None of these arguments, though, per-
suade us to conclude that the district court abused its discretion
when weighing the four equitable factors that govern injunctions
authorized by I.R.C. § 7402(a). Ernst & Whinney, 735 F.2d at
1301.
       First, Appellants’ reference to I.R.C. § 7407(b)(2) does not
change how we evaluate the district court’s authority under
§ 7402(a). Section 7407(b) authorizes district courts to issue in-
junctions if three conditions are met: “first, the defendant must be
a tax preparer; second, the conduct complained of must fall with-

2
  In their reply brief, Appellants say, “Cotton and PALDC do not dispute that
Internal Revenue Code, Section 7402(a) authorizes the court to enjoin an
individual and an entity from preparing federal tax returns if the four prongs
mentioned above are proven by clear and convincing evidence.” Appellants
then go on to argue that the district court misused its contempt power. But
at no point do Appellants explicitly argue either that the district court
(a) abused its discretion in evaluating the four equitable factors or (b) clearly
erred by finding certain facts.
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10                      Opinion of the Court                 21-10612

in one of the four areas of proscribed conduct, § 7407(b)(1); and
third, the court must find that an injunction is ‘appropriate to
prevent the recurrence’ of the proscribed conduct, § 7407(b)(2).”
Ernst & Whinney, 735 F.2d at 1303. Appellants interpret this to
mean that a district court may only issue a permanent injunction
under § 7407(b) “if it finds that a narrower injunction would be
insufficient to prevent further interference with the administra-
tion of tax laws.” But even if Appellants are correctly interpreting
§ 7407(b)’s limitations on district courts’ authority under
§ 7407(b), such a limitation does not in turn restrict district courts’
authority under § 7402(a). The plain text of § 7402(a) says as
much: “The remedies hereby provided are in addition to and not
exclusive of any and all other remedies of the United States in
such courts or otherwise to enforce [the internal revenue] laws.”
Moreover, and most significantly, the district court expressly
found that “Defendants’ continued violations of my Orders indi-
cate that any remedy short of a permanent injunction on return
preparation is inadequate.” Dist. Ct. Doc. 156 at 14. In other
words, the district court expressly found that a narrower injunc-
tion would not be appropriate. We cannot conclude that the dis-
trict court abused its discretion in this regard. Ample evidence
supports the district court’s conclusion that a narrower injunction
would be inadequate. Appellants had three opportunities to
comply with three prior injunctions, and Appellants were found
to have attempted to circumvent each. In addition, the prior in-
junctions expressly warned Appellants that violations could result
in a permanent ban on their ability to prepare federal tax returns.
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20-14018               Opinion of the Court                      11

        Second, we reject Appellants’ argument that the injunction
must be quashed because it does not afford them an opportunity
to purge. Because § 7402(a) provides ample authority for the dis-
trict court’s permanent injunction in this case, we need not decide
whether a district court’s inherent power to enforce its orders
through contempt must always provide an opportunity to purge,
even when the court has found that any lesser remedy would be
inadequate. And, as noted above, ample evidence supports the
district court’s conclusion that “any remedy short of a permanent
injunction” would be inadequate.
       Third, although the Government addresses this argu-
ment—i.e., that the district court abused its discretion by requir-
ing Appellants to surrender their PTINs and EFINs—we doubt
that Appellants have adequately preserved the alleged error for
our review. The Government requested that the district court
enter an injunction requiring Appellants to surrender their PTINs
and EFINs on three separate occasions: (1) in its initial complaint,
(2) after the evidentiary hearing March 1, 2019 regarding the
Government’s first and second show cause motions, and (3) after
the evidentiary hearing on September 30, 2020 regarding the
Government’s third show cause motion. Therefore, Appellants
had ample warning that the district court might require them to
surrender their PTINs and EFINs. But Appellants did not address
this possibility until their Motion for Clarification and Reconsid-
eration, which they filed after the district court entered the Final
Injunction at issue here.
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12                         Opinion of the Court                      21-10612

       In any event, we readily conclude that the district court did
not abuse its discretion. We noted above that Appellants repeat-
edly attempted to circumvent the district court’s injunctions. A
PTIN is necessary for a person to prepare returns for others, and
an EFIN is necessary for a person to file returns electronically.
Requiring surrender of those numbers is a common provision in
similar contexts. It aids in enforcing the restrictions in the Final
Injunction and aids the Government’s efforts in monitoring com-
pliance. 3
       For the foregoing reasons, the judgment of the district
court is
       AFFIRMED.

3
  The district court permanently enjoined Appellants from (1) preparing fed-
eral tax returns and (2) transferring or selling their customer lists to a group
of Non-Parties with whom Appellants were affiliated. In their briefs, Appel-
lants argue that the injunction barring them from preparing federal tax re-
turns is overbroad, but they say almost nothing concerning the second aspect
of the injunction. Accordingly, we cannot conclude that the district court
abused its discretion by prohibiting Appellants from transferring or selling
their customer lists to the specified group of Non-Parties in the order.