United States v. Buff

Background

The United States sued Carolyn Buff to collect unpaid civil penalties assessed for violations of the Bank Secrecy Act. The opinion states that Buff is a dual United States–French citizen living in France and that she maintained six foreign bank accounts between 2006 and 2009. The Internal Revenue Service required her to file annual Reports of Foreign Bank and Financial Accounts for years in which she held more than $10,000 in foreign financial accounts.

Buff did not file income-tax returns for several years and later filed returns for 2006, 2007, and 2008 in July 2010. She filed the corresponding foreign-account reports on September 21, 2011. The Internal Revenue Service determined that the reports were late and that the violations were non-willful. It assessed an updated penalty of $30,000, plus interest and additional penalties. The United States later brought this action to collect the unpaid penalties.

The parties disputed whether Buff’s deposition had to be taken under the Hague Convention on the Taking of Evidence Abroad in Civil or Commercial Matters. On October 20, 2022, the court ordered Buff to sit for her deposition and warned that refusing to do so would prevent her from raising defenses at the summary-judgment stage. Buff continued to refuse, asserting that the deposition could expose her to European sanctions. Discovery closed on December 1, 2022.

Motions and Report

The United States moved for summary judgment and to prevent Buff from raising certain defenses under Rules 37 and 56 of the Federal Rules of Civil Procedure. Buff opposed the motions and moved to amend her answer to add a reasonable-cause defense and sought relief under Rule 60(b)(3), which concerns relief based on alleged misconduct or misrepresentation in obtaining a judgment or order.

Magistrate Judge Jennifer Willis recommended granting the United States’ motion to prevent certain defenses, denying Buff’s cross-motions, and granting summary judgment for the United States. Because Buff filed timely objections, Judge Daniels reviewed the challenged portions of the report independently and then adopted the report in full.

Defense Preclusion as a Discovery Sanction

The court held that preventing Buff from asserting certain defenses was an appropriate sanction for violating the deposition order. Under Rule 37, discovery sanctions may be considered based on the noncompliance’s willfulness, whether lesser sanctions would work, the duration of the violation, and whether the party was warned about the consequences.

The court found that Buff’s refusal was willful because the deposition order was clear, she understood the consequence of refusing, and compliance was within her control. The court also found that preventing her from raising the defenses was an appropriate and sufficiently limited sanction. Buff had proposed being barred only from relying on information she might have provided during the deposition, but the court found that proposal functionally equivalent to the sanction imposed because the deposition was intended to address her possible defenses.

The court further found that Buff’s noncompliance lasted 45 days, from the October 20 order until the December 1 deadline, and that she had been specifically warned of the consequences. The United States’ motion to prevent Buff from asserting new defenses was therefore granted.

Motion to Amend

The court denied Buff’s cross-motion to amend her answer to add a reasonable-cause defense. Although Buff argued that she had not previously known about that defense, the court held that her lack of knowledge of the law did not justify the delay. The court also found the proposed amendment untimely and prejudicial because discovery had ended and the United States had already moved for summary judgment.

Rule 60(b)(3) Motion

The court denied Buff’s request for relief under Rule 60(b)(3). It held that the rule did not apply because there was no final judgment or order from which to grant relief. The court also found that Buff had presented no new, substantive argument showing that the United States misrepresented the nature of the case to the court.

Summary Judgment

The court granted the United States’ motion for summary judgment as to Buff’s liability for civil penalties under 31 U.S.C. § 5321. The parties did not dispute the basic facts concerning Buff’s failure to file the reports on time or her responsibility to file them for 2006, 2007, and 2008. Because Buff was barred from asserting a reasonable-cause defense and did not support her challenge to summary judgment with evidence, the court concluded that the United States was entitled to judgment on liability as a matter of law.

Disposition

Judge Daniels overruled Buff’s objections and adopted Magistrate Judge Willis’s report and recommendation in full. The United States’ motions to prevent certain defenses and for summary judgment were granted. Buff’s cross-motions to assert affirmative defenses and amend her pleadings were denied. The court also denied Buff’s request for an extension of time to reply to the United States’ response to her objections. The clerk was directed to close the open motion at ECF No. 153. The United States had 30 days from the decision to submit a proposed final judgment with updated interest calculations and revised penalties under 31 U.S.C. § 3717(e).