united states v. barrett, d.c. colo., 10-cv-02130-rbj-bnb

Checkpoint Contents

Federal Library

Federal Source Materials

Federal Tax Decisions

American Federal Tax Reports

American Federal Tax Reports (Current Year)

2013

AFTR 2d Vol. 112

112 AFTR 2d 2013-5750 - 112 AFTR 2d 2013-5619 (721 F.3d 1016)

U.S. v. BARRETT, 112 AFTR 2d 2013-5697, Code Sec(s) 7402; 7403, (DC CO), 08/13/2013


U.S. v. BARRETT, Cite as 112 AFTR 2d 2013-5697, CodeSec(s) 7403; 7402, (DC CO), 08/13/2013

UNITED STATES OF AMERICA, PLAINTIFF v. Charles BARRETT, and Kathleen BARRETT,

DEFENDANTS.

Case Information:

[pg. 2013-5697]

Code Sec(s): 7403; 7402

Court Name: U.S. District Court, Dist. of Colorado,

Docket No.: Civil Action No. 10-cv-02130-RBJ-BNB,

Date Decided: 08/13/2013.

Prior History: Earlier proceeding at (2013, DC CO) 111 AFTR 2d 2013-664.

Tax Year(s): Year 2007.

Disposition: Decision for Govt. in part.

HEADNOTE

1. Collection actions-repatriation of assets. Magistrate judge ordered that taxpayers who were

involved in collection case, and against whom district court had previously issued ex parte writ ne exeat

republica and default judgment, must surrender their passports and all international travel documents,

cancel all airline tickets for travel out of U.S., file proof of that cancellation by stated date, and obtain no

new passports or international travel documents. Magistrate also set evidentiary hearing, wherein govt.

would have opportunity to establish its right to have writ continue in effect and taxpayers would have

opportunity to counter same, and show there was no money available to satisfy repatriation order

contained in default judgment or to pay their tax liability.

Reference(s): ¶ 74,035.01(110) Code Sec. 7403;Code Sec. 7402

OPINION

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO,

ORDER

Judge: Magistrate Judge Boyd N. Boland

This court issued, ex parte, a Writ of Ne Exeat Republica [Doc. # 27] against Charles and Kathleen

Barrett on December 15, 2010. The Barretts were detained on August 8, 2013, by the Marshals Service

as they prepared to leave the country. The Barretts appeared with counsel this morning at a status

conference. The United States also was present.

The United States alleged in a Complaint [Doc. # 1, filed 9/1/2010] that in their 2007 tax return the

Barretts "sought a refund based on false withholding credits in the amount of $326,421," and that the

Internal Revenue Service ("IRS") "issued a refund to [them] in the amount of $217,615 based on the false

information contained in the 2007 Return." Id. at ¶6. The Barretts deposited the refund into their bank

account at the Paonia State Bank; wire transferred the money to an account in their names at Montrose

Bank; then wire transferred $64,720 to an account with the Banco de la Oriental del Uruguay. Id. at ¶¶6,

8-9. An assessment of tax was made against the Barretts for unpaid federal income taxes for tax year

2007 in the amount of $324,271. Id. at ¶7. By this action the United States sought to reduce the federal

tax assessments against the Barretts to judgment and also sought an order requiring the Barretts to

repatriate assets transferred abroad in order to pay their outstanding federal tax liabilities. Id. at pp. 3-4.

The Barretts failed to answer or otherwise respond to the Complaint, and the Clerk of Court entered

default against them. Entry of Default [Doc. # 43, filed 12/7/2011]. Subsequently default judgment was

entered against the Barretts "in the total amount of $255,976.68, plus interest and other statutory

additions and less any payments made" and requiring the Barretts "to repatriate and pay over to the

United States any and all funds that they wired to the Banco de la Republica Oriental del Uruguay."

Default Judgment [Doc. # 52, filed 4/9/2013].

The Writ of Ne Exeat Republica (the "Writ") commands the United States Marshal and any other officer in

whose presence the defendants may be found to restrain them from departing the jurisdiction of the

United States and to "bring them before a United States Magistrate Judge where they shall either (a)

surrender their passports and all international travel documents; or (b) post a cash bond in an amount

equal to the lesser of (i) $351,196.97 (the assessed amount of their unpaid federal tax liabilities) or (ii) the

value of their net equity in their worldwide assets, as security that they will not depart the jurisdiction of

the United States of America without prior permission of the court." Writ [Doc. # 27] at pp. 1-2. The United

States also seeks to conduct discovery to determine the location, value, and legal status of the Barrett's

assets.

The writ ne exeat republica is "an obscure writ that is ancient, infrequently used and, historically, a

stranger to tax law." Anthony D. Rebollo, The Civil Arrest and Imprisonment of Taxpayers: An Analysis of

the Writ of Ne Exeat Republica , 7 Pitt. Tax R. 103 (2010). Its ancient and obscure nature

notwithstanding, the writ specifically is available to the United States pursuant to 26 U.S.C. § 7402(a)

in actions to collect taxes. See United States v. Shaheen, 445 F.2d 6, 9 [28 AFTR 2d 71-5026]-10

(7th Cir. 1971) (stating that "[t]he power of a district court to issue a writ ne exeat republica, though

seldom exercised, is not questioned" and that a "proper office of the writ is to aid the sovereign to compel

a citizen to pay his taxes"). However, a writ ne exeat republica cannot be employed "for any pur [pg.

2013-5698] color> pose akin to imprisonment for debt" or "as a substitute sanction" where there is a

"bona fide inability to pay." 7 Pitt. Tax R. at 148-49.

Where, as here, the writ was issued ex parte and the defendants later are detained, the writ "can

authorize no more than a brief period of initial restraint during which the Government has the burden of

proving, in an evidentiary hearing, after due notice has been given, its right to have the restraint continue

in effect." Id. at p. 10. The requisite burden is described in United States v. Mathewson, 1993 WL

113434 [71 AFTR 2d 93-1453] (S.D. Fla. 1993), as follows:

A Writ of Ne Exeat Republica is a form of injunctive relief that restrains the defendant

from leaving the jurisdiction in order to compel feasance to the sovereign. The court has

the power to issue the Writ as may be necessary or appropriate for the enforcement of

the internal revenue laws. In appropriate circumstances, the Writ may issue to detain a

citizen for a limited time to enable the Government to have effective discovery, both on

issues of liability and with respect to the location, value, and legal status of the

taxpayer's property.

To receive issuance of the Writ, at a minimum, the Government must meet the burden

of proof associated with a preliminary injunction. In turn, preliminary injunctive relief

stems from four factors: (1) a substantial likelihood the movant will succeed on the

merits; (2) the movant will suffer an irreparable injury if the injunction is not issued; (3)

the potential injury to the movant outweighs the potential harm to the opposing party;

and (4) the injunction would not disserve the public interest.

Id. at 1-2 (internal quotations and citations omitted). With respect to the second factor--concerning

irreparable injury--the government may meet its burden by showing that "the taxpayer's departure will

substantially prejudice the collection of taxes." Id. at 2. And as to the fourth factor, "the collection of taxes

certainly serves the public interest," and the government need make no further showing. Id.

At the status conference this morning, the defendants asserted that there is little or no money available,

either here or abroad, to satisfy any tax liability. A similar argument was made under slightly different

circumstances in Bank of America v. Veluchamy, 643 F.3d 185, 190 (7th Cir. 2011), where the court

ruled:

The district court had the power to impose a minimal seizure on the Veluchamys until

they abided by the asset production order or explained to the district court why they

could not. The Veluchamys complain that all of this effort is for naught because "[t]here

is just very little money available to satisfy [Bank of America's] judgment." The district

court has responded with an order designed to make them prove it, and until they show

that the money is unavailable (or until they transfer the funds subject to the order back

to the United States), their passports will remain in the district court's care.

IT IS ORDERED:

((1)) Pending their compliance with the repatriation order contained in the Default Judgment [Doc. #

52] and further order of the court, Charles Barrett and Kathleen Barrett must (i) surrender their

passports and all international travel documents to the United States Marshal; (ii) cancel all airline

tickets for travel out of the United States and file proof of that cancellation on or before August 16,

2013; (iii) obtain no new passports or international travel documents; and (iv) not travel outside of the

continental United States;

((2)) Charles and Kathleen Barrett shall be released from custody upon the surrender of their

passports;

((3)) An evidentiary hearing is set for September 17, 2013, at 8:30 a.m., in Courtroom 401, 4th floor,

Alfred A. Arraj United States Courthouse, 901 19th Street, Denver, Colorado, at which time (i) the

United States must establish its right to have the Writ continue in effect; and (ii) the defendants may

demonstrate that there is no money available to satisfy the repatriation order contained in the Default

Judgment [Doc. # 52] or to pay their tax liability; and

((4)) In anticipation of the September 17 hearing, each side may take no more than three depositions.

Deposition notices may include requests for production of documents which shall be responded to

and responsive documents produced at or before the date and time of the deposition. Local rule of

practice 30.1A, D.C.COLO.LCivR, is modified to provide that "reasonable notice" for the taking of a

deposition shall be not less than five business days.

Dated August 13, 2013.

BY THE COURT:

Boyd N. Boland

United States Magistrate Judge

© 2014 Thomson Reuters/Tax & Accounting. All Rights Reserved.

Checkpoint Contents

Federal Library





2013

AFTR 2d Vol. 112

112 AFTR 2d 2013-7451 - 112 AFTR 2d 2013-7324

U.S. v. BARRETT, 112 AFTR 2d 2013-7414, Code Sec(s) 7403, (DC CO), 10/11/2013


U.S. v. BARRETT, Cite as 112 AFTR 2d 2013-7414, CodeSec(s) 7403, (DC CO), 10/11/2013


DEFENDANTS.

Case Information:

[pg. 2013-7414]

Code Sec(s): 7403




Prior History: Later proceeding at (2013, DC CO) 112 AFTR 2d 2013-7415.

Earlier proceedings at (2013, DC CO) 112 AFTR 2d

2013-5697; and (2013, DC CO) 111 AFTR 2d 2013-664.


Disposition: Decision for Taxpayers.

HEADNOTE

1. Collection actions-repatriation of assets-writ ne exeat republica. Magistrate judge recommended

discharging writ ne exeat republica that had been issued against taxpayers in collection case: govt. failed

to establish necessity for continuing writ, in that it didn't show taxpayers had any assets outside U.S.

capable of liquidation such that taxpayers' departure from U.S. would substantially prejudice its collection

efforts or that it would otherwise suffer irreparable injury if writ weren't continued.

Reference(s): ¶ 74,035.01(110) Code Sec. 7403 ne exeat republica

OPINION


RECOMMENDATION OF UNITED STATES MAGISTRATEJUDGE AND ORDER


This matter arises on the Writ Ne Exeat Republica [Doc. # 27] (the "Writ") and my Order [Doc. # 75]

setting a hearing on the issue of the continuing propriety of the Writ. I held a hearing on the matter this

afternoon; received evidence and heard arguments of counsel; and made findings and rulings, which are

incorporated here. In summary and for the reasons stated on the record, I respectfully RECOMMEND that

the Writ be DISCHARGED. 1

[1] Where, as here, the writ was issued ex parte and the defendants later are detained, the writ "can

authorize no more than a brief period of initial restraint during which the Government has the burden of

proving, in an evidentiary hearing, after due notice has been given, its right to have the restraint continue

in effect." Id. at p. 10. The requisite burden is described in United States v. Mathewson, 1993 WL

113434 [71 AFTR 2d 93-1453] (S.D. Fla. 1993), as follows:

A Writ of Ne Exeat Republica is a form of injunctive relief that restrains the defendant

from leaving the jurisdiction in order to compel feasance to the sovereign. The court has

the power to issue the Writ as may be necessary or appropriate for the enforcement of

the internal revenue laws. In appropriate circumstances, the Writ may issue to detain a

citizen for a limited time to enable the Government to have effective discovery, both on

issues of liability and with respect to the location, value, and legal status of the

taxpayer's property.

To receive issuance of the Writ, at a minimum, the Government must meet the burden

of proof associated with a preliminary injunction. In turn, preliminary injunctive relief

stems from four factors: (1) a substantial likelihood the movant will succeed on the

merits; (2) the movant will suffer an irreparable injury if the injunction is not issued; (3)

the potential injury to the movant outweighs the potential harm to the opposing party;

and (4) the injunction would not disserve the public interest.

Id. at 1-2 (internal quotations and citations omitted). With respect to the second factor--concerning

irreparable injury--the government may meet its burden by showing that "the taxpayer's departure will

substantially prejudice the collection of taxes." Id. at 2. And as to the fourth factor, "the collection of taxes

certainly serves the public interest," and the government need make no further showing. Id. In addition,

the Writ should be discharged on a showing by the defendants that there is little or no money available,

either here or abroad, to satisfy the tax liability. See, e.g., Bank of America v. Veluchamy, 643 F.3d 185,

190 (7th Cir. 2011).

Default judgment has been entered against the defendants, Default Judgment [Doc. # 52], which satisfies

the first factor.

The defendants established at the hearing this afternoon that the amount of money transferred out of the

country by the Barretts was actually approximately $111,000.00 less than was alleged in the Declaration

of Revenue Officer Roseanne Miller [Doc. # 13-6] offered in sup [pg. 2013-7415] color> port of the United

States' Emergency Motion for Writ [Doc. # 13]. In addition, the United States failed to identify any

substantial assets of the Barretts existing outside of the United States and capable of liquidation, and the

Barretts established that no such assets exist. Consequently, the United States has failed to show that

the Barretts' departure from the United States will substantially prejudice its collection efforts, see

Matthewson, 1993 WL 113434 [71 AFTR 2d 93-1453] at 2, and failed to show that it will suffer an

irreparable injury if the Writ is not continued. For the same reasons, the United States failed to show that

the potential injury to it from discharging the Writ outweighs the potential harm to the Barretts.

Finally, "the collection of taxes certainly serves the public interest," id., satisfying the fourth factor.

Not only did the United States fail to meet its burden to establish the necessity for continuing the Writ, but

the Barretts proved that there are no significant assets available, here or abroad, to satisfy the tax liability.

Under those circumstances, continuing the Writ would be punitive in nature and improper. See Anthony

D. Rebollo, The Civil Arrest and Imprisonment of Taxpayers: An Analysis of the Writ of Ne Exeat

Republica , 7 Pitt. Tax R. 103, 148-49 (2010).

I respectfully RECOMMEND that the Writ No Exeat Republica [Doc. # 27] issued against Charles and

Kathleen Barrett be DISCHARGED. 2

In addition, IT IS ORDERED:

((1)) This is a Recommendation only and does not act as an order of the court. Pending the entry of

such an order, the Writ remains in effect as do the requirements of my Order [Doc. # 75] that the

Barretts (I) surrender their passports and all international travel documents; (ii) obtain no new

passports or international travel documents; and (iii) not travel outside of the continental United

States until further order of the court;

((2)) Defendants' Motion to Vacate Default Judgment and Settle Relief [Doc. # 60] and defendants'

Motion to Vacate Default Judgment and Settlement Relief [Doc. # 62] are DENIED as redundant of

defendants' Motion to Vacate Default Judgment and Relief [Doc. # 53];

((3)) Defendants' Motion for Leave to File Brief In Support of Motion to Vacate Default Judge [Doc. #

81] is GRANTED. The defendants shall file their brief on or before October 17, 2013;

((4)) The United States' Motion In Limine Regarding Fifth Amendment Claims [Doc. # 97] is

GRANTED IN PART and DENIED IN PART consistent with my rulings on contemporaneous

objections made during the hearing this afternoon; and

((5)) Defendants' Motion for Determination: No Money to Repatriate [Doc. # 102] is subsumed within

my finding that there are no significant assets available, here or abroad, to satisfy the tax liability, and

is GRANTED to that extent.

Dated October 11, 2013.

BY THE COURT:

Boyd N. Boland


1

I have not reduced to writing all of my findings and conclusions. The transcript of today's hearing, which

the parties my obtain, will serve to supplement this Recommendation.

2

Pursuant to 28 U.S.C. § 636(b)(1)(C) and Fed. R. Civ. P. 72(b), the parties have 14 days after service of

this recommendation to serve and file specific, written objections. A party's failure to serve and file

specific, written objections waives de novo review of the recommendation by the district judge, Fed. R.

Civ. P. 72(b); Thomas v. Arn, 474 U.S. 140, 147-48 (1985), and also waives appellate review of both

factual and legal questions. Makin v. Colorado Dept. of Corrections, 183 F.3d 1205, 1210 (10th Cir.

1999); Talley v. Hesse, 91 F.3d 1411, 1412-13 (10th Cir. 1996). A party's objections to this

recommendation must be both timely and specific to preserve an issue for de novo review by the district

court or for appellate review. United States v. One Parcel of Real Property, 73 F.3d 1057, 1060 (10th Cir.

1996).


Checkpoint Contents

Federal Library





2013

AFTR 2d Vol. 112

112 AFTR 2d 2013-7451 - 112 AFTR 2d 2013-7324

U.S. v. BARRETT, 112 AFTR 2d 2013-7415, Code Sec(s) 7403, (DC CO), 12/04/2013


U.S. v. BARRETT, Cite as 112 AFTR 2d 2013-7415, CodeSec(s) 7403, (DC CO), 12/04/2013


DEFENDANTS.

Case Information:

[pg. 2013-7415]

Code Sec(s): 7403




Prior History: Earlier proceedings at (2013, DC CO) 112 AFTR 2d

2013-7414; (2013, DC CO) 112 AFTR 2d 2013-5697; and

(2013, DC CO) 111 AFTR 2d 2013-664.


Disposition: Decision for Govt.

HEADNOTE

1. Collection actions-contempt. Magistrate judge recommended that married taxpayers, as defendants

to collection suit, be confined to half-way house and held in contempt of default judgment and repatriation

order requiring them to repatriate funds sent out of U.S. by wire transfer: taxpayers had not made any

meaningful attempt to access subject funds, which could be used to repay their underlying tax debt.

Reference(s): ¶ 74,035.01(110) Code Sec. 7403

OPINION

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO, [pg. 2013-7416]

color>

CERTIFICATION OF FACTS PURSUANT TO 289 U.S.C. §636(e)(6); RECOMMENDATION OF UNITED STATESMAGISTRATE JUDGE; AND ORDER


This matter arises on the following:

((1)) The defendants' Motion to Vacate Default Judgment [Doc. # 53, filed 4/12/2013] (the "Motion to

Vacate Default Judgment");

((2)) United States' Motion for Contempt [Doc. # 109, filed 10/24/2013] (the "Motion for Contempt");

and

((3)) Defendants' Notice of Withdrawal of (1) Motion to Vacate Default Judgment [Doc. # 53], and (2)

Memorandum In Support of Motion to Vacate Default Judgment [Doc. # 108] [Doc. # 127, filed

11/27/2013] (the "Motion to Withdraw Motion to Vacate Default Judgment").

The Motion to Withdraw Motion to Vacate Default Judgment [Doc. # 127] is GRANTED, and the Motion to

Vacate Default Judgment [Doc. # 53] is DENIED as withdrawn.

In addition, I respectfully CERTIFY FACTS to the district judge pursuant to 28 U.S.C. § 636(e)(6)

demonstrating that the Barretts are in contempt of the Default Judgment, and I respectfully

RECOMMEND that the Barretts be confined in a half-way house until the contempt is purged.

I. Background

This action was commenced on September 1, 2010, when the United States filed its Complaint to Reduce

Federal Tax Assessments to Judgment and to Obtain an Order Requiring Defendants to Repatriate

Assets [Doc. # 1] (the "Complaint"). The Complaint alleges that Charles and Kathleen Barrett (the

"Barretts") sought an income tax refund "based on false withholding credits" and that the Internal

Revenue Service issued a refund "in the amount of $217,615.00 based on the false information contained

in the 2007 Return." Id. at ¶6. The Complaint also alleges that the Barretts wire transferred $64,720.00

from the United States to a bank in Uruguay. Id. at ¶9. The Complaint asserted two claims for relief. First,

the United States sought to reduce to judgment a tax assessment against the Barretts in the amount of

$351,196.97 plus interest and statutory additions as allowed by law. Id. at Count One. Second, the United

States sought an order requiring the Barretts to "repatriate the $64,720.00 that they wired to their account

with [Banco de la Republica Oriental del Uruguay]." Id. at p. 5.

The Clerk entered default against the Barretts on December 7, 2011. Entry of Default [Doc. # 43]. On the

Motion [Doc. # 50] of the United States, the district judge order that default judgment enter against the

Barretts. Order [Doc. # 51, entered 4/8/2013]. The Clerk entered Default Judge [Doc. # 52] on April 9,

2013. The Default Judgment provides:

ORDERED that default judgment is hereby entered in favor of Plaintiff United States of

America and against Defendants Charles Barrett and Kathleen Barrett in the total

amount of $255,976.68, plus interest and other statutory additions and less any

payments made against the liabilities, accruing from March 1, 2013, on Count One of

the United States' Complaint for unpaid federal income tax liabilities for the tax year

ended December 31, 2007. It is further

ORDERED that on the claim for relief in Count Two, Charles Barrett and Kathleen

Barrett are hereby ordered to repatriate and pay over to the United States any and all

funds that they wired to the Banco de la Republica Oriental del Uruguay.

Id.

Almost immediately thereafter, on April 12, 2013, the Barretts filed, pro se, the Motion to Vacate Default

Judgment [Doc. # 53]. That was followed by two additional requests to vacate the default judgment [Doc.

## 60 and 62], which were denied as redundant. Recommendation and Order [Doc. # 106] at p. 4.

The Barretts returned to the United States in approximately August 2013, and were detained pursuant to

a Writ of Ne Exeat Republica that had been entered against them. Writ [Doc. # 27]; Order [Doc. # 75].

Counsel entered an appearance for the Barretts on August 12, 2013.

II. Applicable Procedure

The Motion for Contempt [Doc. # 109] has been referred to me. I lack authority to enter a contempt

citation under the facts presented here. Although 28 U.S.C. § 636(e) confers contempt powers on a

magistrate judge under certain circumstances, those powers do not extend to civil contempt occurring

outside the presence of the magistrate judge in cases not subject to consent under 28 U.S.C. § 636(c).

The contempt procedure applicable here is set out in § 636(e)(6), as follows:

[T]he magistrate judge shall forthwith certify the facts to a district judge and may serve

or cause to be served, upon any person whose behavior is brought into question under

this paragraph, an order requiring such person to appear before a district judge upon a

day cer [pg. 2013-7417] color> tain to show cause why that person should not be

adjudged in contempt by reason of the facts so certified. The district judge shall

thereupon hear the evidence as to the act or conduct complained of and, if it is such as

to warrant punishment, punish such person in the same manner and to the same extent

as for a contempt committed before the district judge.

In connection with certifying the facts to the district judge, "the magistrate judge may conduct a hearing,

but the magistrate judge functions only to certify the facts and not to issue any order of contempt."

Bowens v. Atlantic Maintenance Corp., 546 F. Supp. 2d 55, 71 (E.D.N.Y. 2008)(internal quotation and

citations omitted). The initial show cause hearing before the magistrate judge merely provides the

defendants with an opportunity to explain their conduct prior to the matter being certified to the district

judge for a contempt trial. In addition:

If the [magistrate judge] finds [the respondents'] explanation to be satisfactory, [he] may

choose not to certify the matter for further proceedings. If this result occurs, the

[magistrate judge's] preliminary show cause hearing will have been an efficient means

of disposing of the matter. On the other hand, should the [magistrate judge] not be

satisfied with [the respondents'] explanation, [he] cannot adjudicate the matter [himself],

but must follow the certification process of § 636(e).

In re Kitterman, 696 F. Supp. 1366, 1370 (D. Nev. 1988).

"There can be no question that courts have inherent power to enforce compliance with their lawful orders

through civil contempt." Shillitani v. United States, 384 U.S. 364, 370 (1966). Similarly, the United States

Court of Appeals for the Tenth Circuit has stated that a "court's interest in ensuring a party's compliance

with its orders is a great one, enforceable by fines and imprisonment." Ohlander v. Larson, 114 F.3d

1531, 1541 (10th Cir. 1997).

An order of civil contempt must be supported by clear and convincing evidence establishing that (1) a

valid order exists, (2) the defendants had actual knowledge of the order, and (3) the defendants

disobeyed the order. United States v. Ford, 514 F.3d 1047, 1051 [101 AFTR 2d 2008-620] (10th Cir.

2008). Once the movant makes the required showing, the burden shifts to the alleged contemnor to show

either that he complied with the order of that he could not comply. Id.

I held two hearings which are applicable to the Motion for Contempt. First, I held a hearing on October 11,

2013, to consider whether the Writ of Ne Exeat Republica entered against the Barretts should continue in

effect. See Order [Doc. # 75]; Trans. of Proceedings of October 11, 2013 [Doc. # 110] (hereinafter

"Trans."). Substantial evidence concerning the Barretts' assets was introduced during the October 11

hearing. In addition, I held a hearing on November 21, 2013, specifically directed to the Motion for

Contempt. See Order to Show Cause [Doc. # 113]; Courtroom Minutes [Doc. # 124].

III. Certified Facts

[1] I hereby find by clear and convincing evidence the following facts material to the issue of contempt

and certify them to the district judge: 1

((1)) The Barretts received an undeserved tax refund of more than $215,000 in November 2008.

Response [Doc. # 115] at p. 2.

((2)) The Barretts acknowledge that the refund was "erroneous." Brief [Doc. # 108] at pp. 2-3; Motion

to Vacate [Doc. # 53] at p. 7 (stating that "the Barrett's [sic] were not contesting the fact they owed

the IRS for the $217,615 refund").

((3)) In January and February of 2009, the Barretts sent $16,000 by wire transfer to a bank in

Uruguay, Complaint [Doc. # 1] at ¶9; Trans. [Doc. # 110] at p. 125 lines 12-14, and attempted

unsuccessfully to wire another $48,720 out of the country. Trans. [Doc. # 110] at p. 125 lines 10-19.

((4)) In July 2009, the Barretts moved to Ecuador.

((5)) This action was commenced in September 2010, Complaint [Doc. # 1], and service was made in

Ecuador in December 2010. Certificate of Execution [Doc. # 115-1] at pp. 161-96.

((6)) The Barretts admit that they were aware of the pending action. Specifically, the Barretts state:

The Barrett's [sic] contacted many firms for legal representation, each firm wanted

$50,000 or more in retainer which the Barrett's [sic] did not have nor see a need to

spend since the Barrett's [sic] were not contesting the fact they owed the IRS for the

$217,615 refund plus 20% penalty. The delay in Notice of Service gave the Barrett's

[sic] time to search for proper legal counsel. The Barrett's [sic] civil legal counsel

Michael [pg. 2013-7418] color> Grattan refused to enter as counsel for this IRS tax

case.... Mr. Grattan did how every [sic] engage in communication with Lindsay L.

Clayton [counsel for the United States], to try to research [sic] a settlement.

Motion to Vacate [Doc. # 53] at pp. 7-8.

((7)) On January 6, 2012, Mr. Barrett, purporting to act for himself and his wife, filed a Motion to

Correct the Record [Doc. # 44]. The Motion to Correct the Record was construed as a motion to set

aside default, Order [Doc. # 49, filed 1/30/203] at p. 1, and was denied. Id. at p. 6. The Order noted

that "Mr. Barrett offers no explanation for the defendants' failure for nearly one year to answer or

otherwise respond to the Complaint" and that "the defendants have not tendered an answer or other

response to the Complaint and, consequently, have not presented a meritorious defense." Id. at p. 4.

Consequently, by January 2013 the Barretts were aware of this action; of the efforts of the United

States to recover the undeserved tax refund; and of their obligation to answer or otherwise respond

to the Complaint and establish a meritorious defense. The Barretts still failed to defend, however, and

the Default Judgment was entered on April 9, 2013.

((8)) The Barretts finally retained counsel and undertook to defend the case in earnest only after they

returned to the United States in August 2013 and were detained pursuant to the Writ. Until then, they

apparently viewed themselves as beyond the reach of the United States. I find that the Barretts acted

willfully in failing to defend the action and have no excuse for their default.

((9)) The Default Judgment [Doc. # 52], including the repatriation order contained within the Default

Judgment, is a valid order. Although the Barretts initially challenged the validity of the Default

Judgment and sought to have it set aside, they have withdrawn that request. Motion to Withdraw

Motion to Vacate Default Judgment [Doc. # 127]; Pro Se Opposition [Doc. # 128] at p. 3 (containing

the Barretts' statement that they have "agreed to" withdraw the Motion to Vacate Default Judgment).

((10)) The Default Judgment requires the Barretts "to repatriate and pay over to the United States

any and all funds that they wired to the Banco de la Republica Oriental del Uruguay." Default

Judgment [Doc. # 52]. The evidence establishes and I find that the Barretts sent $16,000 by wire

transfer to the Banco de la Republica Oriental del Uruguay. Complaint [Doc. # 1] at ¶9; Trans. [Doc.

# 110] at p. 125 lines 10-19.

((11)) The Barretts have actual knowledge of the Default Judgment.

((12)) The Barretts have failed and refused to repatriate the $16,000 sent out of the country by wire

transfer.

((13)) The Barretts possess assets which are located outside of the United States and which are

available to satisfy, in whole or in part, the repatriation order contained within the Default Judgment.

In particular, Mrs. Barrett maintains a bank account at ProduBank. Trans. [Doc. # 110] at

40:16-41:25. As of March of 2013, the ProduBank account had a balance of $12,792.81. Id. at p.41

lines 23-25; Exh. 3. Although Mrs. Barrett testified that she was unable to access the account

balance by the use of her bank card, the evidence is clear and I find that Mrs. Barrett made no

meaningful effort to attempt to access the funds in the ProduBank account. In addition, Mr. Barrett

owns minority interests in the following companies: RalcoNutri; Ralco Uruguay; Ralco Costa Rico;

Ralco Panama; Ecuador Medical Tourism Association; BCS; Aqua Solutions; Jerusalem Fund;

Relocation Services of Ecuador; and Petra Petroleum. Id. at 117:13-124:14.

((14)) Although the Barretts admit that they own an interest in a farm in Ecuador, the unrebutted

evidence established that the real property could not be sold due to a boundary dispute. Id. at

28:11-29:11, 75:6-77:23.

((15)) The Barretts also own a Chevrolet Trailblazer in Ecuador with a Blue Book value of $3,237.60,

but the evidence established that it cannot be sold so long as the Barretts are in the United States.

Id. at 79:3-79:20.

((16)) The Barretts' failure to repatriate and pay over to the United States funds equal to the $16,000

sent by wire transfer to Banco de la Republica Oriental del Uruguay from either or both (i) the funds

on deposit in the ProduBank account and/or (ii) by sale or transfer of the minority corporate interests

in RalcoNutri; Ralco Uruguay; Ralco Costa Rico; Ralco Panama; Ecuador Medical Tourism

Association; BCS; Aqua Solutions; Jerusalem Fund; Relocation Services of Ecuador; and Petra

Petroleum, as required by the Default Judgment, are acts of contempt.

IV. Conclusion

I respectfully RECOMMEND:

((1)) That the district judge find the Barretts in contempt of the Default Judgment; and [pg.

2013-7419] color>

((2)) The Barretts be confined in a half-way house until the contempt is purged. 2

In addition, IT IS ORDERED:

((1)) The Motion to Withdraw Motion to Vacate Default Judgment [Doc. # 127] is GRANTED; and

((2)) The Motion to Vacate Default Judgment [Doc. # 53] is DENIED as withdrawn. Dated December

4, 2013.

BY THE COURT:

Boyd N. Boland


1

The facts largely are undisputed.

2

Pursuant to 28 U.S.C. § 636(b)(1)(C) and Fed. R. Civ. P. 72(b), the parties have 14 days after service of

this recommendation to serve and file specific, written objections. A party's failure to serve and file

specific, written objections waives de novo review of the recommendation by the district judge, Fed. R.

Civ. P. 72(b); Thomas v. Arn, 474 U.S. 140, 147-48 (1985), and also waives appellate review of both

factual and legal questions. Makin v. Colorado Dept. of Corrections, 183 F.3d 1205, 1210 (10th Cir.

1999); Talley v. Hesse, 91 F.3d 1411, 1412-13 (10th Cir. 1996). A party's objections to this

recommendation must be both timely and specific to preserve an issue for de novo review by the district

court or for appellate review. United States v. One Parcel of Real Property, 73 F.3d 1057, 1060 (10th Cir.

1996).


Checkpoint Contents

Federal Library





Advance AFTR

U.S. v. BARRETT, 113 AFTR 2d 2014-XXXX, (DC CO), 01/29/2014


U.S. v. BARRETT, Cite as 113 AFTR 2d 2014-XXXX, (DC CO),01/29/2014

UNITED STATES OF AMERICA, Plaintiff, v. CHARLES BARRETT, and KATHLEEN BARRETT

Defendants.

Case Information:

Code Sec(s):

Court Name: IN THE UNITED STATES DISTRICT COURT FOR THE

DISTRICT OF COLORADO,

Docket No.: Civil Action No. 10-cv-02130-RBJ,


Disposition:

HEADNOTE

.

Reference(s):

OPINION


ORDER

Judge: Judge R. Brooke Jackson

This matter is before the Court on review of the recommendation of United States Magistrate Judge Boyd

N. Boland to discharge the writ of ne exeat republica pursuant to which Charles and Kathleen Barrett

have been detained in the United States for approximately three and one half months. Jurisdiction is

proper under 26 U.S.C. § 7402 and 28 U.S.C. §§ 1340 and 1345. I decline to discharge the writ at this

time for the reasons set forth herein.

STANDARD OF REVIEW

This appeal is based upon the record and briefs submitted by the parties. I consider the recommendation

on this unusual writ to be a recommendation on a dispositive motion. Therefore, I review de novo the

portions of the magistrate judge's recommendation on which an objection has been properly made. 28

U.S.C. § 636(b)(1); Fed. R. Civ. P. 72(b)(3).

FACTS

A. The Writ.

In 2008 Mr. and Mrs. Barrett filed a fraudulent tax return for the 2007 tax year that resulted in a $217,615

tax refund to which they were not entitled. The Internal Revenue Service discovered the fraud in February

2009. Although the Barretts filed a return in March 2009 in which they acknowledged that the tax withheld

was incorrectly reported, they did not return the wrongfully obtained refund. The government has been

trying through various means to find and obtain assets to apply to the debt since that time. This lawsuit

and the subject writ are part of that effort.

Specifically, on September 1, 2010 the United States filed this action, alleging that the Barretts had

removed certain funds from the United States, and seeking an order and judgment requiring that the

funds be repatriated to be applied to their tax debt. [ECF No. 1]. In an effort to identify assets available for

application to the debt, and to collect such assets, the United States on November 4, 2010 filed an ex

parte sealed motion for the issuance of a writ of ne exeat republica against the Barretts. [ECF No. 13]. A

writ of ne exeat republica is a form of injunctive relief ordering the person to whom it is addressed not to

leave the jurisdiction of the court or the state, for example, to aid the sovereign to compel a citizen to pay

his taxes. 1

On December 2, 2010 this Court, by Senior District Judge Zita Leeson Weinshienk, granted the motion

and ordered (1) that a writ be issued to restrain the Barretts from departing the jurisdiction of the Court

until further court order; (2) that they be required to post security for their tax obligation, penalties and

interest either in the amount of $351,196.97 or in the amount of the value of their net equity in their

worldwide assets; (3) that they be kept in the custody of the United States Marshal pending a final

evidentiary hearing; (4) that they produce all books and records of their assets; and (5) that they may not

assign, encumber or otherwise alienate any property belonging to them. [ECF No. 19]. An evidentiary

hearing was set for December 2, 2011. Id. An amended version of the order was issued on December 13,

2010. [ECF No. 26]. The writ was formally issued by Magistrate Judge Boland on the same date. [ECF

No. 27].

The Barretts, however, had relocated to Ecuador. They were served there on December 21, 2010 [ECF

No. 39]. The writ of ne exeat republica lost any benefit at that time, since they apparently had left the

jurisdiction of the United States before it was issued.

B. Default Judgment.

The Barretts did not respond to the Complaint. On December 7, 2011 a default was entered [ECF No.

43]. On April 9, 2013 a default judgment was entered against the Barretts in the amount of "$255, 976.68

plus interest and other statutory additions, less any payments, and less any payments made against the

liabilities, accruing from March 1, 2013." [ECF No. 51]. The Barretts were also ordered to repatriate

certain funds that they had wired to the Banco de la Republica Oriental del Uruguay, and the United

States was awarded its costs.Id. The Barretts did not comply with the order to repatriate the funds wired

to the Uruguay bank. They did file three motions to vacate the default judgment [ECF Nos. 53, 60 and

62]. 2

C. Detention.

In the summer of 2013 the Barretts visited the United States, apparently to attend their daughter's

wedding. On August 8, 2013 United States Marshals detained them pursuant to the writ. Defendants were

ordered to turn over their passports and any international travel documents to the Court and to remain

within the United States. They have been living with relatives in Colorado since they were detained.

D. October 11, 2013 Hearing.

An evidentiary hearing was held in front of Magistrate Judge Boland on October 11, 2013 [ECF No. 110]

in order to determine whether the writ should remain in effect. 3 At the hearing, the United States

provided evidence that one or the other or both of the Barretts own assets abroad, including the following:

• Approximately $12,000-$13,000 in a bank account at ProduBank, located in Cuenca, Ecuador.

EH, 41:23-25, 59:25, 60:1-4. The United States provided a copy of the latest bank statement

produced, which indicated a balance of $12,792.81.Id. at 41:23-25, 42:1-7.

• Approximately $1,623-$1,823 in Pichincha Bank, located in Cuenca, Ecuador. EH, 127:12-17,

130:1-4, 132:21-25, 133:1. The United States submitted three copies of bank statements from

this account. Id. at 128:12-21, 129:3-17, 129:24-25, 130:1-10. The latest statement is dated

August 30, 2013. Id. at 134:1-4.

• Approximately $114 in Cooperativa JEP bank, located in Cuenca, Ecuador. EH, 136:11-18.

• Approximately $60 in First State Paonia Bank, located in Paonia, Colorado. EH, 126:18-25,

127:1-2.

• A 50% interest in real property in Ecuador that was purchased, in total, for $64,000 and

subsequently improved. EH, 28:11-19, 29:19-24, 30:3-24. The United States submitted a deed

for this property. Id. at 32:1-13, 33:22-24.

• A Chevy Trailblazer purchased in November 2010 for $18,000. EH, 34:3-8, 135:19-21. The

United States submitted the title to the car. Id. at 34:24-25, 35:1-14.

• Two shares of PepsiCo stock owned by Mrs. Barrett.See EH, 37:4-8, 74:7-16.

• Minority interests in various companies across Latin America associated with a United States

agricultural products producer and distributor, Ralco Nutrition. See EH, 38:11-25, 39:1-6,

117:20-24, 118:10-14, 119:7-9, 119:25, 120:1. The evidence indicated that these interests

were:

• a 1.82% interest in RalcoNutri, EH, 117:20-24, a company that owns equipment, product

inventory, registrations, and copyrights, id. at 118:5-9.

• a 2% interest in Ralco Uruguay, EH, 118:10-14, a company that owns inventory and office

equipment, and which has six to ten products already registered, id. at 118:23-25, 119:2-5.

• a 2% interest in Ralco Costa Rica, EH, 119:7-9, a company that is in the process of registering

products,id. at 119:18-22.

• a 2% interest in Ralco Panama, EH, 119:25, 120:1, a company that is in the process of

transferring products and registering,id. at 120:12-13.

• a 40% interest Agro Natural, a company related to Ralco Nutrition. EH, 38:12, 38:24-25, 29:1-6.

• Minority and majority interests in various other companies across Latin America, including BCS

(51%), Aqua Solutions (50%), Jerusalem Fund (10%), and Ecuador Medical Tourism

Association (61-100%). EH, 65-74, 116:20, 116:24-25, 120:16-21, 121:1-2, 122:10-13,

122:20-22.

• A minority interest in U.S. company Petra Petroleum (12%). EH, 123:9-16.

• Office furniture and business equipment in Ecuador valued by Defendant Charles Barrett at

approximately $6,984. EH, 142:6-11; see also id. at 141:15-19.

• Ecuadorian silver coins no longer used as currency worth approximately $1,000 in melt. EH,

40:2-5, 63:6-13.

• Jewelry with unknown value. EH, 37:18-23, 38:6-10.

• Rental Income of $300-400 per month. EH, 52:5-21, 95:14-22.

• A horse with unknown value. EH, 162:2-5.

During the evidentiary hearing, the Barretts maintained that the assets established by the United States

were primarily valueless for a number of reasons, including:

• The $12,000-$13,000 at ProduBank cannot be accessed from the United States. EH, 92:11-14.

Mrs. Barrett later testified at a November 21, 2013 show cause hearing 4 [ECF No. 142] that

she could not access her bank account via her ATM card. See SCH, 21-23. However, Mrs.

Barrett has never attempted to access her bank account via a different bank's ATM machine, to

call the bank using the phone number on the back of the card, to utilize the online banking

features of ProduBank, or to have Western Union assist with a transfer from the bank. See id.

at 25-27.

• There had been a $700 deduction from the Pichincha bank account after the date of the latest

bank statement. EH, 134:9-10. During his testimony, Mr. Barrett claimed that there was a more

recent bank statement; however, defense counsel represented that the most recent statement

they had matched the one the United States entered into evidence. EH, 133:10-25, 134:1.

• The 50% interest in real property cannot be sold because the property is the subject of a

boundary dispute within Ecuadorean courts. Mrs. Barrett testified that it is illegal to sell property

in Ecuador without proper boundaries being established; that "[w]e could go back on [the

person who sold the property to us] but we haven't chosen to do that"; and that although the

Barretts have been trying to clear up the dispute, she does not know whether any progress in

resolving the dispute has been made. EH, 29:6-18; 76:6-21. She later added that the fact that

she is in the United States and not in Ecuador is another reason that the property cannot be

sold. EH, 106:12-15.

• According to Mrs. Barrett, the Chevy Trailblazer has a Blue Book value of only $3,237.60. EH,

79:13-18. Defendants also claim they cannot sell the Chevy Trailblazer from the United States.

EH, 79:19-21.

• Mrs. Barrett testified that she cannot sell her shares of PepsiCo because she does not have

physical possession of the shares, she does not have documentation for them, and, despite

their having been a gift from an aunt and uncle, she does not "know of any way that I would sell

them." EH, 74:17-21.

• Mrs. Barrett's 40% interest in Agro Natural, a company related to Ralco Nutrition, has no value

according to her. EH, 39:10-12.

• The value for all of Defendants' other interests in Latin American companies is either zero or

negligible, according to Mrs. Barrett. See generally EH, 65-74. While Mrs. Barrett first claimed

that many of these companies were in the process of being shut down, or that operations had

halted,see generally EH, 65-74, she later stated that the companies "were just established" and

"have not had time to became viable," id. at 103:20-21. Mr. Barrett stated that two companies,

BCS and Ecuador Medical Tourism Association, are in the process of being shut down because

"[i]f you do not make profit in two years in Ecuador the minister - the superintendent of

companies orders you to close down a company." Id. at 121:7-11. This claim was not confirmed

by other evidence. Mr. Barrett later testified that he sold part of his interest in BCS for $20,000

at some time within the last four years.See id. at 159:7-14; see also 157:24-25.

• Petra Petroleum, a U.S. company in which Mr. Barrett owns a 12% interest, is no longer

operational and does not own any assets. EH, 123:21-25, 124:1. Mr. Barrett later testified that

there is a Petra Petroleum account with Bank First in Oklahoma that he had previously used to

pay personal credit card bills. EH, 137:24-25, 138:1-3. According to Mr. Barrett, the account is

still open but in the process of being closed because it is worth negative $244. Id. at 138:4-5.

• The valuation of the office equipment and furniture--Mr. Barrett's personal valuation--is not

relevant according to Mr. Barrett, because "Ecuador wouldn't even allow this in [a separate

court case] because without a factura [invoice] it has no value. But I wrote it down trying to

claim value. So you can value it at whatever." EH, 142:14-16.

• The location of the Ecuadorian coins is unknown, but Mrs. Barrett "assum[es] they're down

there [in Ecuador]." EH, 40:8-13.

• The jewelry is "nothing of value," EH, 38:9-10, and its location is currently unknown, id. at

37:24-25, 38:1-5. There has been no evidence showing that the jewelry has been appraised.

• All of the rental income the Barretts earn per month is paid, Mrs. Barrett claims, to a caretaker

to check on the property. EH, 52:16-19, 96:13-15. Mrs. Barrett also claimed that she and her

husband are overpaying rent on the rental units (as they do not own the units) but that they will

not be pursuing a refund for the overpayment. EH, 52:8-14, 53:1-13, 90:21-24.

• Defendants do not know if the horse has been sold. EH, 162:6-7.

The combined value of these assets appears to add up to more than $48,000. Mrs. Barrett testified that if

she were to sell everything she owned, "[t]o the best of [her] knowledge" she would be able to sell it for

$48,595.97. EH, 88:22-25, 89:4-9. 5

E. Recommendation.

At the conclusion of the hearing the magistrate judge indicated that he would recommend that the writ of

ne exeat republica be discharged. The magistrate judge found that such a writ may, in appropriate

circumstances, be issued to detain a citizen for a limited time to enable the government to obtain

discovery as to the location, value, and legal status of the taxpayer's property. EH, at 225. However, to

sustain the continuation of the writ, the government must make a showing similar to that necessary to

obtain a preliminary injunction.Id.

The writ was issued because an affidavit filed by the government had indicated that large sums of money

had been transferred to international bank accounts. However, the magistrate judge found that there were

significant errors in the affidavit. Id. at 226. In any event, the evidence showed that there were "minor

assets" outside the country (a car valued at less than $5,000, some bank accounts described by the

defendants as valueless and by the government as perhaps slightly more than $10,000), but that those

assets did not justify the continued prohibition of international travel.Id. at 226-27. As for the one more

substantial asset, the real property in Ecuador, the magistrate judge found that the evidence showed that

it cannot be liquidated, and therefore, that continuing to restrain the freedom of the defendants to travel

(because of that asset) "serves no purpose and amounts to an improper burden on them."Id. at 227.

Magistrate Judge Boland followed his bench ruling with a written recommendation that the writ be

discharged, issued on the same day. [ECF No. 106]. The court held that in order to obtain a writ of ne

exeat republica, or in this instance to continue the writ in effect, the government had the burden to prove

(1) a substantial likelihood of success on the merits, (2) irreparable injury, (3) which outweighs the

potential harm to the defendants, and (4) that continuation of the writ would not disserve the public

interest. Id. at 2 (citingUnited States v. Mathewson , No. 92-1054-Civ.Davis, 1993 WL 113434 [71

AFTR 2d 93-1453], at 2 (S.D. Fla. Feb. 25, 1993). Magistrate Judge Boland found that the default

judgment satisfied the first factor, and the purpose of the writ to aid in the collection of taxes satisfied the

fourth factor. Recommendation at 2-3. However, because the government "failed to identify any

substantial assets of the Barretts existing outside the United States and capable of liquidation, and the

Barretts established that no such assets exist," it had not shown that the Barretts' departure from the

United States would substantially prejudice its collection efforts. Id. Thus, the government had not

established the second (irreparable injury) or the third (harm to the government outweighs potential harm

to the defendants) factors. Id. at 3.

The government filed a timely objection to the recommendation [ECF No. 111], to which the Barretts

responded [ECF No. 117], and the government replied [ECF No. 119].

F. Contempt.

Shortly after the hearing on the writ (and before filing its objection to the magistrate judge's

recommendation), the government filed a motion to hold the Barretts in contempt of the court's April 9,

2013 order requiring them to repatriate and pay to the United States the funds they had wired to the

Banco de la Republica Oriental del Uruguay. [ECF No. 109]. Judge Boland issued an order directing the

Barretts to show cause as to why they should not be held in contempt. [ECF No. 113]. Following receipt of

the Barretts' response [ECF No. 118] and a hearing on November 21, 2013, the magistrate judge on

December 4, 2013 issued a written order certifying certain facts to this Court (per 28 U.S.C. § 636(c)) that

demonstrated that the Barretts were in contempt of the repatriation order, and recommended that the

Barretts be confined in a half-way house until the contempt is purged. [ECF No. 131].

The facts certified, beyond reciting the Barretts' receipt in 2008 of an undeserved refund exceeding

$215,000, included among a list of 16 numbered paragraphs the following key findings:

• In January and February 2009 the Barretts sent $16,000 by wire transfer to the Banco de la

Republica Oriental del Uruguay.

• The default judgment included an order that those funds be repatriated and paid to the United

States.

• Despite their knowledge of that order, the Barretts have failed to and refused to repatriate those

funds.

• The Barretts possess assets located outside of the United States that are available to satisfy, in

whole or in part, the repatriation order. In particular, Mrs. Barrett admitted that as of March 2013

her account at ProduBank had a balance of $12,792.81. Although she testified that she could

not access the account via her bank card, she has made no meaningful attempt to access the

funds in the account. In addition, Mr. Barrett owns minority interests in a list of 10 companies.

• The Barretts' failure to repatriate funds equal to the $16,000 sent to the Uruguayan bank from

either the ProduBank funds or the sale or transfer of minority interests in the 10 companies are

acts of contempt.

Id. at 5-9.

G. Purging the Contempt.

On January 6, 2014 the government notified the court that on December 17, 2013 it had received $16,000

in proceeds from its levy on Jon Knochenmus, the majority owner of the Ralco entities in which Mr.

Barrett owned a minority interest. [ECF No. 143]. The government advised that its application of those

funds to the Barrett's 2007 tax liability appeared to be sufficient to purge the contempt finding. Id. Judge

Boland agreed. On January 7, 2014 he issued an order withdrawing his certification of facts and

recommendation that this Court find the Barretts in contempt. [ECF No. 144]. He simultaneously denied

the government's motion to hold them in contempt. Id.

ANALYSIS

The matter is before this Court solely on the magistrate judge's recommendation to discharge the writ of

ne exeat republica. With two exceptions I agree entirely with the magistrate judge's findings and

conclusions.

First, I agree that the four-factor test, set forth in theMathewson case, 1993 W.L. 113434, at 2, and

adopted by Judge Boland, is a reasonable standard to use in the decision whether to issue or to continue

the writ. I likewise agree that it is an extraordinary writ. Because the writ restrains the Barretts'

constitutional right to travel, the government bears a heavy burden to show exceptional circumstances

warranting such relief. See, e.g., Shaheen, 445 F.2d at 10;United States v. Clough , No. C-73-2105-SW,

1977 WL 1196 [40 AFTR 2d 77-5158], at 3 (N.D. Cal. May 20, 1977).

Regarding the first Mathewson factor, which focuses on the merits of the government's tax claim, the

default judgment establishes the Barretts' tax liability. It is undisputed that they have not fully satisfied that

judgment. The evidence presented at the October 11, 2013 hearing established that the United States

collected what it could from the Barretts' assets in the United States. EH, 184:2-4. Indeed, Mrs. Barrett

admits that the Barretts have no substantial assets remaining in the United States. Id. at 51:14-17. The

United States has also established that the IRS has few other tools remaining to use to collect against the

Barretts' foreign assets. Id. at 184:14-25, 185:1-3. Specifically, revenue officer Roseanne Miller testified

that "there's very little we can do once the money is moved off shore." Id. at 184:23-24.

Likewise, I agree that the fourth Mathewson factor, focusing on the public interest, has been satisfied. It is

in the interest of the public that the government collect taxes due and owing to the United States.

I also agree with the magistrate judge that the resolution of the writ issue turns on a comparison of the

injury to the Barretts if the writ is continued to the injury to the United States if the writ is discharged (the

second and thirdMathewson factors). In that regard I note, contrary to suggestions occasionally made by

or on behalf of the Barretts during the history of this case, that this is not a "debtor's prison" situation. The

Barretts are not in custody. But I will roughly analogize, to their benefit, their retention in the United States

to imprisonment. However, their detention is not based on their failure to pay their debt. If they cannot

afford to pay it, then they cannot be detained. Rather, their detention is proper only if the government

proves that they have assets outside the United States that they could apply to the debt but which they

have unreasonably refused to apply.

Finally, I agree that much of what the government established in the way of the Barretts' assets held

outside the country amounts essentially to dribs and drabs that do not justify continuing to detain them. I

include in that group evidence of relatively nominal bank accounts in the Pichincha and Cooperative JEP

banks (which may or may not exist today); the actual cash value that might be realized in a forced sale in

Ecuador of the Chevy Trailblazer and used office furniture; the Ecuadorian coins; Mrs. Barrett's jewelry;

rental income; and the horse. I am not suggesting that this assortment of "small stuff" has no value, or

that the Barretts could not realize some value from these items if they wanted to. However, the

government did not prove that these items had sufficient value to warrant continuing detention.

I depart from the magistrate judge only on two limited issues. First, in the findings of fact certified in

support of the recommendation to hold the Barretts in contempt (since withdrawn), the magistrate judge

found that the government had shown that the Barretts had sufficient assets located outside the United

States to satisfy, in whole or part, the repatriation order. The magistrate judge cited Mrs. Barrett's

ProduBank balance of $12,792.81 and Mr. Barrett's minority interests in 10 companies. The contempt

was purged but not by application of the funds that were found by the magistrate judge to be available to

purge the contempt. It follows that the funds that were found to be available are either still available or, if

not, they are not because the Barretts have done something else with them while the writ has been

pending.

I am satisfied by my review of the record of the October 11 and November 21, 2013 hearings that there

are sufficient funds available to the Barretts via some combination of the ProduBank funds, Mr. Barrett's

minority interests, and, if necessary, supplementation from the "dribs and drabs" discussed above, to

reduce their debt to the government by at least an additional $16,000.

Second, with respect to the Barretts' interest in the improved real property as established by the

government, I do not agree that the defendants have shown that it is not capable of liquidation. What the

record contains is the Barretts', essentially Mrs. Barrett's, assertion that it is the subject of a boundary

dispute; that despite their efforts, the boundary dispute has not been resolved; that under the law of

Ecuador, property subject to a boundary dispute cannot be sold; and that, although for the same reasons

the property should not have been sold to the Barretts, they have not chosen to seek recourse against the

seller. The Barretts have not provided any support for their assertion regarding Ecuadorian law. They

have not documented the existence of a boundary dispute. They have not provided any credible evidence

as to why the boundary dispute has lingered; and they have not provided so much as an explanation as

to why they have not sought recourse against the seller. All this, I note, is despite Mr. Barrett's testimony

that he really does want to pay the tax debt.

In that regard I also find that the record casts significant doubt on the credibility of the Barretts' testimony.

I note the following:

() The Barretts obtained a large tax refund fraudulently. They chastised the government for not

proving that they signed the 2007 tax return and attempted to blame it on a maverick accountant.

When the government produced a copy of their signatures they suggested (with absolutely no

evidence) that the government might have superimposed their signatures.

() In any event, they did not return the improperly obtained refund.

() 100% of the money the government has collected to date has been the result of levies and other

collection measures. To date, the Barretts have not voluntarily paid anything. The record belies any

notion that this is because they could not afford to pay anything.

() For example, the United States questioned Mr. Barrett about $20,000 he had previously transferred

to his son Sean Phillips. Mr. Barrett testified that the $20,000 was a loan. However, after being

confronted with an email from his son, Mr. Barrett admitted that he might have asked him to hold the

money so that the IRS could not take it. He explained that it was a long time ago, and he was very

upset. EH, 144-47.

() Mr. Barrett admitted that he paid personal credit cards out of at least two bank accounts in the

U.S., neither of which were in his name. See EH, 137-140. One of the accounts is owned by Petra

Petroleum, a company in which Mr. Barrett has a 12% ownership interest. Id. at 137:24-25, 138:1.

Another account is owned by another son, Josh Phillips.Id. at 123:9-16, 138:15-25, 139:1-2. Mr.

Barrett wired approximately $1500-$3000 per month over a 2-3 year period into Mr. Phillips' account.

Id. at 140:5-11.

() During the October 11, 2013 hearing, the parties stipulated to a Banco Republica of Uruguay 6

bank account that was opened with a $6000 cash deposit and to which Defendants made two

subsequent $8000 wires. EH, 125:10-14. Mr. Barrett testified that the current balance on the account

was approximately negative $130.Id. at 134:16-23. According to Mr. Barrett, the value of the two wire

transfers-$16,000-was drawn out in March 2011 and used "mainly for household expenses and

[other] expenses." Id. at 135:6-13. There was no testimony concerning the use or whereabouts of the

$6000 used to open the account. Defense counsel also stipulated that Defendants attempted to

make a wire transfer to this bank account in the amount of $48,720, which failed. This amount was

ultimately returned to Defendants via a cashier's check with minor fees subtracted. Id. at 125:14-19.

Mr. Barrett stated that he and his wife used the $48,720 to pay bills and "settle things up."Id. at

136:1-5.

() Defendants made many claims that they own bank accounts with little to negative values. The

United States appears to have requested the production of bank statements for these accounts,

some of which Defendants failed to produce. See EH, 42:12-16, 42:22-25, 43:1, 127:5-11. In one

case, defense counsel claimed they were unable to provide the bank statement from Banco

Bolivariano because the bank failed to respond to requests. Id. at 43:3-4. It is unclear why other bank

statements were not produced. Defendants also testified that some of their bank accounts have been

closed and assets seized by Latin American governments. See EH, 45:13-25, 46:11-21. Like most of

their testimony, there was no confirmation of these claims.

() The Barretts filed financial affidavits in this case with two magistrate judges, and, based on those

affidavits, they were found to be eligible for the appointment of counsel at government expense. It

turns out, however, that shortly before their appearance in front of the magistrate judges, Mrs. Barrett

sold water shares in the Fire Mountain Canal Company for $40,000. EH, at 19:23, 20:3-11. But

neither Mr. nor Mrs. Barrett disclosed this in their financial affidavits filed with the court. Mrs. Barrett's

financial affidavit states that her sole "income from a business ... or other sources" in the past 12

months was $430 from Social Security. [ECF No. 70] Mr. Barrett's financial affidavit, while more

detailed, likewise did not list this $40,000. 7 [ECF No, 68]

In short, the Court cannot trust the testimony of the Barretts. That being the case, their assertions about

the unavailability of their real property in Ecuador as a source of funds to reduce their tax debt is

unpersuasive. There might be evidence supporting the Barretts' position, but we have not yet seen it.

CONCLUSION

As indicated, the United States unquestionably established the first and fourth Mathewson factors. With

respect to the second of the four factors, irreparable injury, the United States may meet this burden by

showing that "the taxpayer's departure will substantially prejudice the collection of taxes." Mathewson,

1993 WL 113434 [71 AFTR 2d 93-1453] at 2. History tells us that the Barretts are unlikely to pay

anything towards their tax debt if they are not compelled to do so, and the record shows that the

government has exhausted its sources outside of the writ. Accordingly, the irreparable injury factor has

been established.

With respect to the third Mathewson factor, which compares the government's injury to the harm to the

Barretts of continuing to limit their right to travel, the record establishes that the Barretts have assets

available to pay the debt down by at least an additional $16,000. To at least that extent, the Court

concludes that the harm to the United States of losing the opportunity to obtain those funds outweighs the

harm to the Barretts. The key to the door is in the Barretts' hands.

The question of whether the government's loss of an opportunity for further payment from the value of the

Barretts' real estate holdings in Ecuador outweighs the harm to the Barretts is not as clear. The real

estate is the largest remaining asset of the Barretts established by the government's evidence, and once

the writ is discharged, the government's ability to see anything from that asset is for all practical purposes

gone. The real estate may not be capable of liquidation; and if so, then the Court would agree with the

magistrate judge that the harm of continued detention based on the real estate's value outweighs the

harm to the government of hanging on in the hope that someday something might be realized from this

asset. "[T]he restraint on the freedom to travel is an extreme measure." Mathewson, WL 113434 at 2. The

writ should be discharged upon a showing by the Barretts that there is little or no money available from

this asset.See Bank of America v. Veluchamy , 643 F.3d 185, 190 (7th Cir. 2011). However, as the record

now stands, this Court concludes that the government's harm outweighs the harm to the Barretts with

respect to this asset.

In sum, in order for the writ to be discharged, the Barretts must (1) pay the $16,000, and (2) either sell the

property and provide the proceeds to the government or prove, with credible evidence, that they actually

cannot sell it.

ORDER

For the reasons discussed above, the Court declines to discharge the writ of ne exeat republica at this

time and does not adopt the recommendation of the magistrate judge.

Dated this 29th day of January, 2014.

BY THE COURT:

R. Brooke Jackson

United States District Judge

1

See, e.g., United States v. Shaheen, 445 F.3d 6, 9-10 (7th Cir. 1971).

2

Numbers 60 and 62 were denied as duplicative of number 53 [ECF. No. 104], and number 53 was

ultimately withdrawn by the Barretts through counsel, [ECF No. 127].

3

Citations to this evidentiary hearing will take the following form: EH, Page:Line.

4

References to this hearing will be cited as SCH, Line: Page.

5

Mrs. Barrett qualified that answer by stating that she could not realistically sell everything she owns at

this time. EH, 89:10-12. According to Mrs. Barrett, this is due to the fact that she is not in Ecuador, and

thus not in a position to sell possessions located in that country. Id. at 89:20-21.

6

Presumably this is the same bank account as referenced in the April 9, 2013 Default Judgment [Doc. 52]

under the name Banco de la Republica Oriental del Uruguay.

7

The money went into the trust account of an attorney, Mr. Grattan. The Barretts apparently transferred

$3,000 to a bank in Oklahoma,id. at 20:17-18; about $800 went to Mr. Grattan for his services, id. at

23:24-25; and, finally, $30,000 went to pay legal fees to defense counsel in the present case, id. at

24:9-10. In addition, Mr. Grattan paid approximately $6,200 to the IRS to satisfy a levy on the account. Id.

at 20:18-19.


united states v. barrett, d.c. colo., 10-cv-02130-rbj-bnb

Documents