United States v. Yennie

Background

The United States sought to reduce federal income-tax assessments against Joseph H. Yennie to judgment and enforce federal tax liens against real property in Pine Island, Minnesota. The United States alleged that Joseph Yennie failed to file federal income-tax returns for 2005, 2010, and 2013 and reported no income and no taxes owed for 2006 through 2009 and 2011 through 2012, despite receiving taxable income. The Department of the Treasury assessed taxes, interest, and penalties totaling $207,683 for tax years 2005 through 2013.

The United States also named Abraham Algadi, Grant Friese, Jayne Krause, Paul Perry, City of Pine Island, Jay Strande, and Dean Weis because they might claim interests in the property. Joseph H. Yennie’s wife, Sheila A. Yennie, was also named for that reason. The United States alleged that Joseph and Sheila Yennie each owned 50 percent of the property. Sheila Yennie contended that she owned the entire property, including the remaining 50 percent acquired through a 2006 quitclaim deed following her divorce from Joseph Yennie.

Procedural history and standards

The seven other defendants did not answer or otherwise respond. After the United States applied for an entry of default, the Clerk entered default against them on November 27, 2019. Under Federal Rule of Civil Procedure 55, a party generally must first obtain an entry of default and then ask the court to enter a default judgment. When default is entered, the complaint’s factual allegations are generally treated as admitted, except allegations about the amount of damages.

Joseph and Sheila Yennie had filed multiple motions to dismiss, which the Court denied. They also did not provide required initial disclosures, respond to the United States’ discovery requests, or appear for their March 24, 2021 depositions. After Magistrate Judge Becky R. Thorson granted in part the United States’ motion to compel and extended the deadlines, the Yennie Defendants still did not comply fully. The United States sought default judgment against them as a sanction under Federal Rule of Civil Procedure 37(b)(2)(A)(vi), which permits a court to enter default judgment when a party fails to obey a discovery order.

Court’s analysis

The Court granted the request for default judgment against Algadi, Friese, Krause, Perry, City of Pine Island, Strande, and Weis. They had been properly served and failed to respond to the amended complaint, supporting entry of default judgment.

The Court found that Joseph and Sheila Yennie’s repeated discovery failures, failure to appear for depositions, and failure to comply with the magistrate judge’s order showed willfulness and bad faith. The Court concluded that their conduct warranted a default-judgment sanction under Rule 37. It nevertheless did not enter that judgment because the requested relief depended on resolving the disputed ownership of the property.

The Court explained that federal law permits a court to order the sale of property in which the United States has an established interest, subject to equitable considerations. The United States had not established that Sheila Yennie did not already own 50 percent of the property before the 2006 quitclaim deed. The Court identified no authority allowing the United States to satisfy a delinquent taxpayer’s debt by selling property wholly owned by the taxpayer’s nondelinquent spouse.

Disposition

The Court ordered that the United States’ motion be GRANTED IN PART as to the request for default judgment against Abraham Algadi, Grant Friese, Jayne Krause, Paul Perry, City of Pine Island, Jay Strande, and Dean Weis.

The Court ordered that the motion be DENIED IN PART WITHOUT PREJUDICE as to the request for default judgment against Joseph H. Yennie and Sheila A. Yennie and to order the sale of the property. The opinion states that the parties may, at their discretion, submit additional proof about Sheila Yennie’s ownership share.