United States v. Galliani

Background

The United States brought two related actions against Raymond A. Galliani and the Estate of Sharon Galliani concerning alleged failures to file Reports of Foreign Bank and Financial Accounts, commonly called FBARs. Federal law requires covered United States residents or citizens with interests in, or authority over, foreign financial accounts to report those relationships to the Internal Revenue Service.

The government alleged that the defendants had interests in, or authority over, foreign accounts associated with the Janet Trust and Orange LLC structures. It alleged that they willfully failed to file FBARs for specified years and sought civil penalties under 31 U.S.C. § 5321(a)(5)(C). The cases were consolidated, and Raymond A. Galliani was appointed personal representative of the Estate of Sharon Galliani. Discovery was ongoing, with a trial date of February 24, 2025.

Separately, the Internal Revenue Service issued a notice of deficiency concerning tax years 2000–2003 and 2005–2016. The notice stated that the defendants owed additional tax and civil fraud penalties and concluded that income from the offshore entities was taxable to them. In November 2023, the defendants filed a petition contesting the agency’s position in the Tax Court.

Motion to Stay

The defendants moved to stay, or pause, the FBAR cases until the Tax Court case was resolved. Under the applicable standard, the court considered the possible harm to the government from a stay, the hardship or unfairness to the defendants from continuing, and whether a stay would promote the orderly resolution of the issues.

The government argued that the Tax Court case could cause an indefinite delay because no Tax Court trial date had been set and an appeal was possible. It also argued that delay could interfere with discovery and enforcement of a potential judgment because of the age of Raymond A. Galliani and some witnesses, the difficulty of obtaining foreign evidence, and the liquidation of a key offshore entity.

The defendants argued that they intended to resolve the Tax Court case as quickly as reasonably possible. They also argued that continuing the FBAR cases could lead to inconsistent results and duplicative litigation, and that the government had contributed to earlier delays.

Court’s Analysis

The court found that the government had shown a “fair possibility” of harm from a stay. It reasoned that discovery was still underway, unlike in a case where discovery had ended and there were no foreseeable evidence-preservation problems. The court was not persuaded that the government’s alleged earlier delays eliminated the possible harm that a new stay could cause.

The court then concluded that the defendants had not shown a clear case of hardship or unfairness that outweighed the government’s potential harm. The defendants’ concerns about inconsistent results and duplicative litigation did not explain how continuing discovery itself would cause the required hardship. The court also declined to require the Tax Court case to proceed first merely because it involved chronologically earlier issues, because the FBAR cases were farther along and had a set trial date while the Tax Court case had recently begun.

Disposition

The court DENIED the defendants’ motion to stay without prejudice. It explained that the analysis could change depending on how the Tax Court case develops. The order resolved Docket No. 42 in Case No. 22-cv-03365-JSC.