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United States v. Church

United States District Court, W.D. Michigan, Southern Division

April 2, 2019

United States of America, Plaintiff,
Tammy M. Church, et al., Defendants.

          Honorable Paul L. Maloney Judge.



         The United States brought this action seeking to reduce to judgment unpaid tax liabilities owed by Tammy Church and her company, R&R Utilities, LLC, and to enforce its liens on Ms. Church's home. Ms. Church retained the services of Attorney Thomas J. Gezon to represent her and her company in this case. After reaching a settlement, the parties moved this Court on April 1, 2016, to approve an Agreed Final Judgment. (ECF No. 50). The Court entered the Agreed Final Judgment on April 8, 2016. (ECF No. 51).

         Eleven months later, on March 9, 2017, Ms. Church sought to terminate Mr. Gezon as her counsel. (ECF No. 52). On the same day, she filed a motion to set aside the Agreed Final Judgment (ECF No. 53), which is being treated as a motion under Federal Rule of Civil Procedure 60(b)(1). Pursuant to that rule, Ms. Church is entitled to relief only if she establishes that the judgment resulted from “mistake, inadvertence, surprise, or excusable neglect.” In her Rule 60(b)(1) motion, Ms. Church raised with the Court for the first time her contention that she had not consented to the settlement. She offered no explanation in the motion for the significant delay in bringing it.

         This matter has been referred to me to conduct an evidentiary hearing on the disputed factual issue of whether Mr. Gezon had Ms. Church's authority to settle this case and to agree to the entry of final judgment. (Oct. 19, 2018, Order of Reference, ECF No. 75). I have been directed to file a report and recommendation pursuant to 28 U.S.C. § 636(b)(1)(B) regarding my findings. (Id.). I conducted an evidentiary hearing on November 27, 2018, at which Ms. Church and Mr. Gezon testified. (Minutes, ECF No. 82). I have also considered pre-hearing declarations and exhibits filed by Ms. Church and Mr. Gezon.

         Legal Standard and Burden of Proof

         An attorney may not agree to a final resolution of his client's case without express authority from the client. Bradford Exchange v. Trein's Exchange, 600 F.2d 99, 102 (7th Cir. 1979) (citing Associates Discount Corp. v. Goldman, 524 F.2d 1051 (3d Cir. 1975); Thomas v. Colorado Trust Deed Funds, Inc., 366 F.2d 136 (10th Cir. 1966)). An attorney is presumed to act with such authority, however, and that presumption may be overcome only by “affirmative proof that the attorney had no right to consent.” Bradford Exchange, 600 F.2d at 102 (citing United States v. Beebe, 180 U.S. 343 (1901)). Ms. Church, then, bears the burden of proving that Mr. Gezon did not have her authorization to settle this case and to consent to the entry of judgment.

         Factual Findings

         I make the following relevant factual findings by preponderant evidence:

         Mr. Gezon came to represent Ms. Church through his volunteer work with West Michigan Legal Aid Group (Legal Aid). Ms. Church contacted Legal Aid seeking representation in this case, and Legal Aid referred her to Mr. Gezon. Mr. Gezon discussed the case with Ms. Church, including her interest in resolving her tax liability and getting some money to move on with her life. Mr. Gezon then prepared a retainer agreement reflecting the goals they had discussed. (Gezon, Hrg Tr. at 47- 51, ECF No. 83, PageID.518-22; see Retainer Agreement, ECF No. 61-1).

         Ms. Church reviewed and signed the retainer agreement on February 27, 2015. (Church Decl., ¶ 2, ECF No. 61, PageID.315; Church, Hrg Tr. at 16, 28, PageID.487, 499). She acknowledges that she hired Mr. Gezon to help her negotiate a settlement with the government and Old Republic National Title Insurance Company (Old Republic).[1] (Church, Hrg Tr. at 18, PageID.489). By signing the agreement, Ms. Church agreed that the goals of a negotiated resolution would include the following:

• an agreement to allow time for [Ms. Church] to list and sell [her] home, with the net proceeds going to the IRS;
• to excuse or reduce [Ms. Church's] remaining obligation to the IRS, based on the sale; [and]
• to ask for permission to stay in the home while it is listed and to receive an amount of the net proceeds to assist [Ms. Church] in relocating after the sale.

(Retainer Agreement, ¶ 1, PageID.324).

         Also by signing the retainer agreement, Ms. Church conceded her tax liability and the fact that there was “little to no likelihood” of defeating the IRS tax lien. She also acknowledged that the interests of creditors would have to be satisfied before she could retain her home. (Id.).

         Mr. Gezon began his investigation of the tax liabilities at issue in this case through discussions with government counsel. Mr. Gezon obtained and reviewed tax transcripts for the relevant years; he asked a retired IRS agent to review the tax transcripts; and he consulted a retired Assistant U.S. Attorney (AUSA) who had significant experience in tax cases. The retired agent advised Mr. Gezon that there were no viable defenses or challenges to the tax computations in the government's complaint. The former AUSA confirmed that there was no viable defense to the IRS's tax claim. Mr. Gezon discussed with Ms. Church the results of his investigation. (Gezon Decl., ¶ 5, ECF No. 58-1, PageID.278; Gezon, Hrg Tr. at 51-53, PageID.522-24).

         The tax liabilities resulted from a combination of Ms. Church's failure to forward to the IRS the tax withholdings from her employees' wages, as well as her failure to timely file 1040 tax returns and pay the taxes due.[2] (Gezon Decl., ΒΆ 3, PageID.277). The ...

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