United States District Court, E.D. New York
April 9, 2004.
GRANTLEY E. CRICHLOW, Defendant
The opinion of the court was delivered by: NINA GERSHON, District Judge
REPORT AND RECOMMENDATION
On December 30, 2002, the United States filed this action
against defendant Grantley E. Crichlow, pursuant to
26 U.S.C. § 7401, seeking to reduce to judgment defendant's outstanding
liabilities for federal internal revenue taxes, plus statutory
accruals. By Notice of Motion dated April 9, 2003, plaintiff
moves for entry of a default judgment against defendant Crichlow
for failure to answer or otherwise respond to the Complaint.
The motion was referred to the undersigned to prepare a Report
According to the Complaint, Grantley E. Crichlow, who resides
in Brooklyn, New York, filed his federal income tax returns for
the tax years 1981, 1982, 1984, 1985, 1986, 1987, 1988, 1989,
1990, 1991, 1994, 1995, 1996, but failed to pay the amounts owed
in full. (Compl. ¶¶ 2, 3). The Secretary of the Treasury has
calculated the amount of unpaid taxes due and owing to be
$143,336.82. (Cirenza Decl.*fn1 ¶ 7). Penalties and interest
on this amount have been calculated as $633,459.78 through December 31, 2002. (Id.) Together, with
interest and penalties, the government alleges that defendant
owes a total of $776,796.60 in unpaid taxes, interest and
penalties up to December 31, 2002.*fn2
Plaintiff alleges that defendant was sent notices of assessment
and demands for payment for each of the amounts, but defendant
has nevertheless refused to, failed to, or neglected to pay.
Plaintiff thereafter commenced this action and served the
Complaint on defendant on February 3, 2003. Defendant failed to
answer or otherwise respond. (Cirenza Decl. ¶ 3).
On April 10, 2003, the Clerk of Court entered a default against
defendant. Plaintiff now seeks a default judgment in the amount
Rule 55(a) of the Federal Rules of Civil Procedure provides:
"[w]hen a party against whom a judgment for affirmative relief is
sought failed to plead or otherwise defend as provided by these
rules and the fact is made to appear by affidavit or otherwise,
the clerk shall enter the party's default." Fed.R.Civ.P. 55(a).
After a default has been entered against a party, if that party
fails to appear or otherwise move to set aside the default
pursuant to Rule 55(c), a default judgment may be entered. See
In determining whether a default judgment should enter, courts
have cautioned that a default judgment is an extreme remedy that
should only be granted as a last resort. See Meehan v. Snow,
652 F.2d 274, 277 (2d Cir. 1981). While the Second Circuit has
recognized the "push on a trial court to dispose of cases that, in disregard of the
rules, are not processed expeditiously [and] . . . delay and clog
its calendar," it has held that the district court must balance
that interest with its responsibility to "[afford] litigants a
reasonable chance to be heard." See Enron Oil Corp. v.
Diakuhara, 10 F.3d 90, 95-96 (2d Cir. 1993).
Before determining whether a default should enter here, the
court must first ascertain that the defaulting party has been
properly served with the summons and complaint. See Copelco
Capital, Inc. v. Gen. Consul of Bolivia, 940 F. Supp. 93, 94
(S.D.N.Y. 1996) (holding that "[a] court may not properly enter a
default judgment unless it has jurisdiction over the person of
the party against whom the judgment is sought, `which also means
that he must have been effectively served with process'")
(quoting 10 Charles Alan Wright, Arthur R. Miller, Mary Kay Kane,
Federal Practice & Procedure: Civil 2d § 2682, at 407 (1983)).
As the Supreme Court noted in Henderson v. United States,
"the core function of service is to supply notice of the pendency
of a legal action, in a manner and at a time that affords the
defendant a fair opportunity to answer the complaint and present
defenses and objection." 517 U.S. 654, 672 (1996). In following
the Supreme Court's definition of acceptable service, the Second
Circuit has held that there must be service "reasonably
calculated to provide actual notice of the action." Nat'l Dev.
Co. v. Triad Holding Corp., 930 F.2d 253, 258 (2d Cir. 1991),
cert. denied, 502 U.S. 968 (1991). If a defendant does not
receive service in compliance with Rule 4 of the Federal Rules of
Civil Procedure, and does not waive formal service, the court
lacks personal jurisdiction over the defendant. See Jackson v.
Hayakawa, 682 F.2d 1344, 1347 (9th Cir. 1982). "Neither actual notice, nor simply naming the person
in the caption of the complaint will subject defendant to
personal jurisdiction if service was not made in substantial
compliance with Rule 4." Id. (citations omitted).
Service of process in federal actions is governed by Rule 4 of
the Federal Rules of Civil Procedure, which provides in relevant
part as follows:
Service upon an individual . . . may be effected in
any judicial district of the United States: (1)
pursuant to the law of the state in which the
district court is located, or in which service is
effected, for the service of a summons upon the
defendant in an action brought in the courts of
general jurisdiction of that State; or (2) by
delivering a copy of the summons and of the complaint
to the individual personally or by leaving copies
thereof at the individual's dwelling house or usual
place of abode with some person of suitable age and
discretion then residing therein. . . .
Fed.R.Civ.P. 4(e). Looking to the relevant state law,
service of process may be made under New York C.P.L.R. § 308,
2. by delivering the summons within the state to a
person of suitable age and discretion at the actual
place of business, dwelling place or usual place of
abode of the person to be served and by mailing the
summons to the person to be served at his or her last
known residence. . . .
N.Y.C.P.L.R. § 308(2) (McKinney 1990). It is well-established
that the "plaintiff has the burden of proving, by a preponderance
of the credible evidence, that service was properly made" in
strict accordance with Section 308(2) of the C.P.L.R. McCray v.
Petrini, 212 A.D.2d 676, 622 N.Y.S.2d 815, 816 (2d Dep't 1995);
see also Rates Tech., Inc. v. UTT Corp., No. 94 CV 0326, 1995 WL 86264, at *1 (S.D.N.Y. Mar. 2, 1995).
Here, service was made at the defendant's residence 13 Elliot
Place, Brooklyn, N.Y. 11217. Since service has been properly
effected, sufficient to confer jurisdiction over the defendant,
this Court next considers whether the facts alleged in the
Complaint state a valid cause of action.
B. Tax Delinquency Actions
It is clear that the federal government may commence an action
in federal court to collect unpaid federal taxes.
26 U.S.C. § 7401. See United States v. Alfano, 34 F. Supp.2d 827, 836
(E.D.N.Y. 1999); see also Beeler v. United States,
894 F. Supp. 761, 772 (S.D.N.Y. 1995); United States v. Atlantic
Richfield Co., No. 72 CV 523, 1973 U.S. Dist. LEXIS 13831, *2
(E.D. Pa. Apr. 30, 1973). It is equally clear that the government
may seek to recover not only delinquent tax obligations but
statutory interest and penalties when the taxes are not timely
paid. See United States v. Letscher, 83 F. Supp.2d 367, 374
(S.D.N.Y. 1999); Powers v. Karen, 768 F. Supp. 46, 48 (E.D.N.Y.
1997); United States v. Bynum, No. 73 CV 232, 1975 U.S. Dist.
LEXIS 11918, at *5-6 (E.D.N.Y. June 13, 1975).
The statute of limitations that governs the collection of
federal income taxes is set forth in 26 U.S.C. § 6501, which
provides that "the amount of any tax imposed by this title shall
be assessed within 3 years after the return was filed."
26 U.S.C. § 6501(a). Section 6502(a) of Title 26 which was in effect at the
time this action was filed further provides that:
(a) Length of Period Where the assessment of any
tax imposed by this title has been made within the
period limitation properly applicable thereto, such
tax may be collected by levy or by a proceeding in court, but only if the levy is made or
the proceeding begun
(1) with 10 years after assessment of the tax, or
(2) Prior Request If, in any request to extend the
period of limitations made on or before December 31,
1999, a taxpayer agreed to extend such period beyond
the 10-year period referred to in section 6502(a) of
the Internal Revenue Code of 1986, such extension
shall expire on the latest of
(A) the last day of such 10-year period;
(B) December 31, 2002; or
(C) in the case of an extension in connection with an
installment agreement, the 90th day after the end of
the period of such extension.
Here, the Complaint alleges that the taxes owed by defendant
were assessed and notices were sent to him at some time in the
year following each year in which taxes were determined to be
owing and well within the three year assessment period set forth
in subsection (a) of Section 6501. In addition, the government
has submitted several Tax Collection Waivers, Form 900, which
were signed by defendant agreeing to extend the 10 year statutory
period in which the government may collect taxes assessed against
Specifically, on February 3, 1988, defendant executed a
Form 900 extending until December 31, 1999 the 10 year statutory
period for collection of the taxes assessed against him for the
years 1981, 1982, and 1984.*fn3 (Pl.'s Mem. at 1). A second
waiver was executed by defendant on November 6, 1995 extending
the period through December 31, 2005 for the collection of taxes
assessed for the years 1981 through 1982 and 1984 through 1991.
(Id.) Under 26 U.S.C. § 6502(a), that agreed-upon extension of
time was shortened by three years to December 31, 2002. Since
this action was commenced to collect the taxes on December 30, 2002, within the agreed-upon period of extension, the action was
timely failed and the Complaint on its face states a valid cause
When a default judgment is entered, the defendant is deemed to
have admitted all of the well-pleaded factual allegations in the
complaint pertaining to liability. See Greyhound Exhibitgroup,
Inc. v. E.L.U.L. Realty Corp., 973 F.2d 155, 158 (2d Cir. 1992),
cert. denied, 506 U.S. 1080 (1993). For the purposes of an
inquest, a court accepts as true all factual allegations in the
Complaint, except those claims relating to damages. See Au Bon
Pain Corp. v. Artect, Inc., 653 F.2d 61, 65 (2d Cir. 1981).
Since defendant has failed to appear and contest the
allegations in the Complaint, the Court finds, for purposes of
this default motion, that defendant has failed to fully pay taxes
in each of the tax years 1981, 1982, 1984, 1985, 1986, 1987,
1988, 1989, 1990, 1991, 1994, 1995, and 1996.
A) Basis for Default Judgment Damages
It is well-settled that the burden is on the plaintiff to
establish its entitlement to recovery. See Clague v.
Bednarski, 105 F.R.D. 552 (E.D.N.Y. 1985). Although here the
defendant has failed to contest the plaintiff's claim for
damages, this Court must still determine that there is a basis
for the damages sought. Indeed, where a default judgment has been
entered, the courts require the plaintiff to prove damages in an
evidentiary proceeding at which the defendant has the opportunity
to contest the claimed damages. See Greyhound Exhibitgroup,
Inc. v. E.L.U.L. Realty, Corp., 973 F.2d at 158; see also
Levesque v. Kelly Communications, Inc., No. 91 CV 7045, 1993 WL 22113, at *4 (S.D.N.Y. 1993) (noting that "`[w]hile
a default judgment constitutes an admission of liability, the
quantum of damages remains to be established by proof unless the
amount is liquidated or susceptible of mathematical
computation'") (quoting Flaks v. Koegel, 504 F.2d 702, 707 (2d
While "the court must ensure that there is a basis for the
damages specified in a default judgment, it may, but need not,
make the determination through a hearing." Fustok v.
Conticommodity Servs., Inc., 122 F.R.D. 151, 156 (S.D.N.Y.
1988), aff'd, 873 F.2d 38 (2d Cir. 1989) (citing Transportes
Aereos De Angola v. Jet Traders Inv. Corp., 624 F. Supp. 264,
266 (D. Del. 1985)). Where, as here, the defendant has defaulted
on liability, the Court still must assess the damages and hold an
evidentiary hearing, if necessary. However, where the plaintiff
has filed reasonably detailed affidavits and exhibits pertaining
to the damages incurred and where the defendants has failed to
submit papers on the damages issue, the Court can make an
informed decision regarding damages without an evidentiary
In seeking the entry of an order of default judgment from the
Court, the government has set forth in the amended affidavit of
Mr. Cirenza, dated March 8, 2004, a chart detailing the unpaid
tax assessments, plus interest and penalties, for each year in
which defendant has failed to pay taxes. Mr. Crichlow has not
contested any of these numbers. It is well established that
"[w]ith the exception of civil fraud penalty assessments, an IRS
notice of tax deficiency is presumed to be correct." United
States v. Letscher, 83 F. Supp.2d at 372 (citing cases); see
also United States v. Lease, 346 F.2d 696 (2d Cir. 1965). The
taxpayer has the burden of providing by a preponderance of the
evidence that the deficiency is incorrect. See Fustok v.
Conticommodity Servs., Inc., 122 F.R.D. at 156; see also
Moretti v. Comm'r of Internal Revenue, 77 F.3d 637, 643 (2d Cir. 1996). In this case, the IRS
sent notices of tax deficiencies to Mr. Crichlow, setting forth
the amounts due and owing for each of the tax years 1981, 1982,
1984-1991, 1994-1996. Thus, where, as here, the defendant has
failed to respond to the Complaint and has not challenged the
alleged deficiencies, the Court finds that the amounts of tax
deficiencies asserted by the plaintiff to be due and owing are
presumed to correct.
With respect to the civil fraud penalties sought by the
government, "they `can be imposed if the Commissioner proves by
clear and convincing evidence that [the] taxpayer  acted with
an intent to evade paying taxes.'" United States v. Letscher,
83 F. Supp.2d at 373 (quoting Schiff v. United States,
919 F.2d 830, 832 (2d Cir. 1990)). Circumstantial evidence, including
"consistent and substantial understatement of income," or an
"awareness of the obligation to file returns, report income and
pay taxes," has been found sufficient to support the imposition
of penalties. Id. Here, the government has alleged that Mr.
Crichlow was aware of his obligation to pay taxes as demonstrated
by the fact that he filed returns for all 13 years of
delinquency, received notices of the delinquencies, and even
executed waivers extending the period of collection. In the
absence of any objections to the penalties or explanation from
the taxpayer as to why payment was not tendered, the Court finds
the government's undisputed allegations sufficient to warrant
imposition of penalties in this case.
Accordingly, having reviewed the declaration of Mr. Cirenza,
dated March 8, 2004, the Court respectfully recommends that a
default judgment in the amount of $776,796.60 be entered against
defendant Grantley E. Crichlow.
Any objections to this Report and Recommendation must be filed
with the Clerk of the Court, with a copy to the undersigned,
within ten (10) days of receipt of this Report. Failure to file objections within the specified time waives the right to
appeal the District Court's Order. See 28 U.S.C. § 636(b)(1);
Fed.R.Civ.P. 6(a), 6(e), 72; Small v. Secretary of Health and
Human Servs., 892 F.2d 15, 16 (2d Cir. 1989).
The Clerk is directed to mail copies of this Report and
Recommendation to the parties.