Court Opinion

ID: 9481377
Source: CourtListenerOpinion
Date Created: 2023-08-05 08:17:16.770703+00
Date Added: 2024-06-11T17:48:16.745883
License: Public Domain

*1481KEITH, Circuit Judge,
dissenting.
Since I believe that, under the circumstances presented by this ease, it was an abuse of discretion to deny a timely motion to set aside a default judgment that resulted in penalties for fraud, I respectfully dissent. As the majority noted, this Court has indicated that a “glaring abuse” of discretion is not required for reversal of the harsh sanction of default. United Coin Meter v. Seaboard Coastline R.R., 705 F.2d 839, 846 (6th Cir.1983). That case articulated the following factors to be considered in determining whether to set aside default: 1) whether the culpable conduct of the defendant led to the default; 2) whether the nondefaulting party will be prejudiced; and 3) whether the defendant has a meritorious defense. Id. at 845. This court in Shepard Claims Serv. Inc. v. William Darrah & Assoc., 796 F.2d 190 (6th Cir.1986), noted that “[wjhere the defaulting party and counsel have not shown disrespect for the court, or have given evidence of respect for the court’s process by their haste in acting to set aside the default, the courts have been inclined toward leniency.” Id. at 194.
As the majority recognizes, the tax court in the instant case found that there was no indication in the record that petitioner had acted willfully or in bad faith with respect to the default. He moved to vacate the default judgment immediately upon learning from a newspaper article of the entry of such judgment against him. The decision by the tax court was entered on December 21, 1988, the article appeared on January 4, 1989, and the petitioner filed a motion to vacate on January 13, 1989.
While the taxpayer has the responsibility to keep the court informed of his or her address and to prosecute the case, from the point of view of this pro se taxpayer, he had answered the most recent questions of the Commissioner concerning his taxes and had not had anything further requested from him. Procedurally, the taxpayer is the petitioner in a request for the court to determine the deficiency, and therefore has the obligation to prosecute the case. This petition, however, is the taxpayer’s response to the Commissioner pursuing him for a deficiency in tax. It is thus understandable that this pro se taxpayer would fail to understand that he is responsible for prosecuting a case. In fact, the taxpayer must show that he does not owe the amount alleged, rather than the Commissioner being responsible to pursue the claim of money owed. The Commissioner let the case sit dormant for nine years. There were no further requests for payment or information from the taxpayer. He explains that he mistakenly understood the issue had been resolved in 1978. Internal Revenue Service agents apparently told the taxpayer in a 1978 meeting that they were not going to pursue the claim since it was deemed uncollectible based on taxpayer’s inability to pay. There admittedly is some culpability in the failure to inform the court of a change of address and to prosecute the case, but in view of the surrounding facts, the pro se taxpayer, who was imprisoned for much of the time at issue, acted reasonably.
The second factor is prejudice to the government. The majority indicates no finding on this issue other than to note that the tax court had concluded that there would be prejudice. The tax court merely held that the same factors which appeared in Brooks v. Commissioner, 82 T.C. 413, 429 (1984), applied to the current case. In fact, Brooks is readily distinguishable. In Brooks, the court noted that respondent’s agents had spent many years developing and preparing the case and witnesses had traveled substantial distances to be present. The case had been twice set for trial and continued at petitioner’s request.
There is no evidence in the instant case of resources lost as a result of the delay. Mere delay is not sufficient basis for establishing prejudice. The party must show that the delay will result in the loss of evidence, increased difficulties in discovery, or greater opportunities for fraud and collusion. INVST Fin. Group, Inc. v. Chem-Nuclear Sys., Inc., 815 F.2d 391, 398 (6th Cir.), cert. denied, 484 U.S. 927, 108 S.Ct. 291, 98 L.Ed.2d 251 (1987). None of these detriments has been presented in the instant case.
*1482Furthermore, the circumstances of the instant case are far different from the facts of Brooks, where the taxpayer had been dragging out the case by repeatedly seeking continuances. In the instant case, the government also had left the case dormant for nine years without any further contact with the pro se petitioner. The docket indicates no action was taken after Smith filed a response to the Commissioner’s request for admissions in 1978 until June 2, 1987. There is absolutely no demonstration that there is any more prejudice to the respondent resulting from delay in this case than in any other.
The last element of the test for vacating default is the demonstration of a meritorious defense. All the taxpayer must show, however, is a “hint of a suggestion” creating “some possibility that the outcome of trial will be contrary to the result achieved by the default.” INVST Fin. Group, Inc., 815 F.2d at 399. The majority finds that this requirement was met since there was no evidence submitted to support the taxpayer’s computation. This does not apply, however, to the fraud charges. The government has the burden of demonstrating the taxpayer’s fraud by clear and convincing evidence. Tax Ct.R. 142(b). This burden was only met in the instant case by the fact that the allegations of the Commissioner were not disputed. There is no evidence in the record to indicate that the Commissioner would be able to meet his burden on the merits, if the merits were reached in a hearing. Based on these facts, I conclude that there was a hint of a suggestion that, were a hearing held, the taxpayer might be successful on the merits. Thus this last element to vacate default is clearly met.
The taxpayer demonstrated all three elements necessary to vacate a default judgment. Even if one of the elements is weak, this is not fatal to the motion. This court held in Berthelsen v. Kane, 907 F.2d 617 (6th Cir.1990) (per curiam), that a default judgment may be vacated even if fewer than all three factors weigh in favor of the moving party. The Berthelsen court held that the judgment must be set aside despite the moving party’s culpable behavior. Id. at 622. The culpable conduct in Berthelsen was much more severe, actively evading service of process. Here, any culpability resulted from the defendant’s alleged negligence in failing to prosecute his case.
For the foregoing reasons, I would reverse the denial of the motion to set aside the default judgment.