United States v. Malhas
- Beth Freeman
- 5:19-cv-03709
- U.S. District Court · Northern District of California
- 6
In United States v. Malhas, Judge Freeman denied without prejudice the United States’ request for default and default judgment because service on Malhas was inadequate.
The ruling affected the United States’ effort to obtain default and default judgment against Wade Malhas for alleged unpaid foreign-bank-account reporting penalties. The court’s denial was without prejudice.
What happened
The United States sued Wade Malhas to collect unpaid civil penalties, interest, late-payment penalties, and fees related to alleged failures to report a foreign bank account. The United States asked the court to enter default and a default judgment because Malhas had not filed a response.
The court found that the United States had federal subject-matter jurisdiction but had not shown that it properly served Malhas, whom the evidence indicated might be incompetent. The court also stated that it could not enter a default judgment against an incompetent person unless a guardian, conservator, or similar fiduciary had appeared.
Judge Freeman denied without prejudice the United States’ motion for entry of default and default judgment.
The detailed version
- United States v. Malhas · No. 5:19-cv-03709
- Beth Freeman
- Oct. 28, 2020
Background
The United States sued Wade Malhas under the Federal Debt Collection Procedures Act to collect an unpaid balance consisting of civil penalties, late-payment penalties, fees, and interest. The United States alleged that Malhas failed to report his financial interest in a UBS account in Switzerland for calendar years 2006, 2007, and 2008, even though the account exceeded $10,000. The United States alleged that it assessed civil penalties of $524,638 in 2018, which increased to $616,240.26 as of August 25, 2020.
The United States attempted to serve Malhas at his apartment and later mailed copies of the case documents. An attorney later filed a notice of appearance for Malhas but did not otherwise participate. Malhas did not file an answer or other response. The United States also received information from an attorney and a neurologist indicating that Malhas was incompetent. The clerk had previously declined to enter default because the United States had not submitted a declaration stating that Malhas was not incompetent.
Analysis
A default judgment requires two steps: entry of default and then entry of judgment. Before taking those steps, the court must examine subject-matter jurisdiction, personal jurisdiction, and service of process.
The court held that it had subject-matter jurisdiction under federal-question jurisdiction, the statutes authorizing suits by the United States, and the statute giving federal courts exclusive jurisdiction over actions to recover federal fines or penalties.
The court nevertheless found that the United States had not established personal jurisdiction over Malhas. Because the available information indicated that Malhas might be incompetent, the United States had to show that it served him according to Federal Rule of Civil Procedure 4(g) and California law governing service on a person who lacks legal capacity. The court found that the United States had not made that showing.
The court further stated that, even if proper service were demonstrated, it could not enter default judgment against an incompetent person who was not represented by a general guardian, conservator, or similar fiduciary who had appeared. The court declined to exercise its discretion to enter default.
Disposition
The court denied without prejudice the United States’ motion for entry of default and default judgment. The opinion did not decide whether Malhas owed the alleged penalties or the amount of any debt.
Read the full 6-page opinion on CourtListener, the free public archive maintained by the Free Law Project.