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United States v. Estate of Elson

United States District Court, D. New Jersey

December 20, 2018

ESTATE OF SIDNEY ELSON, et at, Defendants.


          KEVIN MCNULTY, U.S.D.J.

         The United States filed this action to collect unpaid gift taxes, interest, and penalties for tax year 2004 from defendant the Estate of Sidney Elson (the "Estate"), as well as others. This matter comes before the Court on the unopposed motion of the United States for entry of default judgment against the Estate only. (DE 30) For the reasons stated herein, the motion will be granted and a default judgment will be entered pursuant to Fed.R.Civ.P. 55(b).


         "[T]he entry of a default judgment is left primarily to the discretion of the district court." Hritz u. Woma Corp., 732 F.2d 1178, 1180 (3d Cir. 1984) (citing Tozer v. Charles A. Krause Milling Co., 189 F.2d 242, 244 (3d Cir. 1951)). Because the entry of a default judgment prevents the resolution of claims on the merits, "this court does not favor entry of defaults and default judgments." United States v. $55, 518.05 in U.S. Currency, 728 F.2d 192, 194 (3d Cir. 1984). Thus, before entering default judgment, the Court must determine whether the "unchallenged facts constitute a legitimate cause of action" so that default judgment would be permissible. DirecTV, Inc. v. Asher, 2006 WL 680533, at *1 (D.N.J. Mar. 14, 2006) (citing Wright, Miller, Kane, 10A Fed. Prac. & P. Civil 3d § 2688, at 58-59, 63).

         "[D]efendants are deemed to have admitted the factual allegations of die Complaint by virtue of their default, except those factual allegations related to the amount of damages." Doe v. Simone, 2013 WL 3772532, at *2 (D.N.J. July 17, 2013). While "courts must accept the plaintiffs well-pleaded factual allegations as true," they "need not accept the plaintiffs factual allegations regarding damages as true." Id. (citing Chanel, Inc. v. Gordashevsky, 558 F.Supp.2d 532, 536 (D.N.J. 2008)).

         A. Prerequisites for Entry of Default Judgment

         Before a court may enter default judgment against a defendant, the plaintiff must have properly served the summons and complaint, and the defendant must have failed to file an answer or otherwise respond to the complaint within 21-day time period provided by die Federal Rules. See Gold Kist, Inc. v. Laurinburg Oil Co., Inc., 756 F.2d 14, 18-19 (3d Cir. 1985).

         The Complaint, filed on July 3, 2018, seeks to collect gift taxes, interest, and penalties assessed against die Estate. (DE 1} The United States has filed proof that on July 9, 2018, the Summons and Complaint were personally served on die Executrix for the Estate. (DE 4) See Fed. R. Civ. P. 4(e). The Estate had 21 days to file an answer or otherwise respond. Fed.R.Civ.P. 12(a). No answer or other responsive pleading appears on die court's docket.

         The clerk entered default on August 15, 2018. (DE 28 and following entry) The United States filed its motion for a default judgment on August 22, 2018. (DE 30) There has been no response to die motion.

         Accordingly, I am satisfied that the prerequisites to filing a default judgment are met. See Gold Kist, 756 F.2d at 18-19.

         B. Three Factor Analysis

         After die prerequisites have been satisfied, a court must evaluate the following three factors: "(1) whether the party subject to default has a meritorious defense, (2) the prejudice suffered by the party seeking default, and (3) the culpability of the party subject to default." Doug Brady, Inc. v. N.J. Bldg. Laborers Statewide Funds, 250 F.R.D. 171, 177 (D.N.J. 2008) (citing Emcasco Ins. Co. v. Sambrick, 834 F.2d 71, 74 (3d Cir. 1987)). Those factors, considered in light of the record of this case, weigh in favor of entry of a default judgment.

         The evaluation of the first factor is always complicated by the defendant's failure to answer or to oppose the motion. My independent review of the case File, however, does not suggest that the claims are legally flawed or that the Estate could mount a meritorious defense. See Doe, 2013 WL 3772532, at *5. Accepting the allegations in the Complaint as true, Comdyne I, Inc. v. Corbin, 908 F.2d 1142, 1149 (3d Cir. 1990), I find that the complaint states a viable claim for relief as against the defendant.

         Sidney Elson made various gifts in 2004. (Cplt. ¶ 11) He did not file a gift tax return; after his death, the Executrix of the Estate did so, and the return was audited by the IRS. (Cplt. ¶¶ 12, 13, 14) On May 2, 2011, a delegate of the Secretary of the Treasury assessed gift taxes against the Estate for tax year 2004. (Cplt. ¶ 15; Declaration of Michele Hornby ("Hornby Dec") Ex. A, DE 30-3) Notice and demand were duly served on the Estate. (Cplt. ¶ 17; Hornby Dec. ¶ 5) Payments ...

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