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United States v. Wells

United States District Court, S.D. Mississippi, Western Division

June 5, 2018

UNITED STATES OF AMERICA PLAINTIFF
v.
SHAMEKA N. WELLS and ELIZABETH STEPHENS DEFENDANTS

          ORDER AND OPINION

          DAVID BRAMLETTE UNITED STATES DISTRICT JUDGE

         Before the Court is the United States of America's Motion for Entry of Default Final Judgment and Permanent Injunction [Doc. 9] against Shameka N. Wells, individually and doing business as S&D Tax Service, LLC, and Elizabeth Stephens.

         Background

         This dispute arises from an IRS investigation of Wells, Stephens, and S&D Tax Service, LLC for preparing thousands of federal income tax returns that falsified business losses and profits to boost the Earned Income Tax Credits customers could claim.[1] These tax scams, the Government estimates, deprived the United States Treasury of millions of dollars in tax revenue.

         The Government sued to permanently enjoin Wells and Stephens from preparing federal tax returns for others.[2] In support of its proposed permanent injunction, the Government's Complaint cites three Internal Revenue Code injunctive-relief provisions, 26 U.S.C. §§ 7402(a), 7407, and 7408.

         Wells and Stephens live and work in McComb, Mississippi. Wells formed S&D in 2010 and continues to use S&D's Electronic Filing Identification Number, even though the company was dissolved in 2011.

         The Government complains that Wells and Stephens “prepare false and fraudulent federal income tax returns that understate their customers' federal income tax liabilities and overstate refunds to which they are entitled.” Doc. 1, ¶8. They do so, the Government alleges, by preparing returns claiming Earned Income Tax Credits “based on fabricated business losses or profits.” Doc. 1, ¶13. These fabricated losses or profits are reported on “Schedule C” forms linked to bogus businesses. Doc. 1, ¶¶18-19.

         Neither Defendant has appeared. Both, however, were served: Stephens by personal service on December 13, 2017, Wells by personal service on January 2, 2018. Docs. 4, 5. Citing Defendants' failure to plead or otherwise defend, the Government moved for entry of default on January 26, 2018. Docs. 6, 7. Three days later, the Clerk of Court entered a Federal Rule of Civil Procedure 55(a) default against Wells and Stephens. Doc. 8.

         The Government now moves the Court to enter a default judgment permanently enjoining Wells and Stephens from preparing federal tax returns for others.

         I

         After the Clerk of Court enters a defendant's default, the plaintiff may apply to the Court for entry of a default judgment. Fed.R.Civ.P. 55(b)(1). The Government applied for and obtained an entry of default against Wells and Stephens, who have to date failed to plead or otherwise defend. Doc. 8.

         A default judgment does not automatically follow an entry of default. 10A Charles Alan Wright, Arthur R. Miller, and Mary Kay Kane, Federal Practice & Procedure § 2688.1 (4th ed., Supp. 2018). That is because Wells and Stephens, as the defaulting defendants, admit only those allegations that are well-pleaded; they do not admit conclusions. Nishimatsu Const. Co. v. Houston Nat. Bank, 515 F.2d 1200, 1206 (5th Cir. 1976) (Wisdom, J.).

         A default judgment is a “drastic remedy” reserved for “extreme situations.” Sun Bank of Ocala v. Pelican Homestead and Sav. Ass'n, 874 F.2d 274, 276 (5th Cir. 1989). In other words, the serious consequences that attend default judgments demand that they not be blithely entered. Lindsey v. Prive Corp., 161 F.3d 886, 893 (5th Cir. 1998). A default judgment is improper, for example, when material fact-issues remain or a complaint's allegations are indefinite. Id. at 893.

         To decide if the allegations of the Government's Complaint are well-pleaded, the Court looks to Federal Rule of Civil Procedure 8 and the “plausibility” standard. Wooten v. McDonald Transit Assocs., Inc., 788 F.3d 490, 498 (5th Cir. 2015) (citing Ashcroft v. Iqbal,556 ...


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