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Wellington v. Daza

United States District Court, D. New Mexico

April 9, 2019



         In this Bivens[1] action, Plaintiff David Wellington, acting pro se, alleges that a search of his residence under a search warrant, procured and executed by agents of the United States Internal Revenue Service (IRS), violated his First and Fourth Amendment rights. See COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF AND DAMAGES (Doc. No. 1) (Complaint). IRS Special Agents Fernando Daza (SA Daza), Sean Marshall (SA Marshall), and Gregory Hand (SA Hand) (together, Defendants) move for summary judgment on six of Plaintiff's seven claims. See DEFENDANT DAZA, HAND, AND MARSHALL'S MOTION FOR PARTIAL SUMMARY JUDGMENT BASED ON QUALIFIED IMMUNITY (Doc. No. 53) (the Motion). The Motion is fully briefed. See PLAINTIFF'S RESPONSE TO DEFENDANTS' PARTIAL SUMMARY JUDGMENT MOTION ON QUALIFIED IMMUNITY (Doc. No. 60) (Response), and REPLY OF THE DEFENDANTS IN SUPPORT OF DEFENDANTS' MOTION FOR PARTIAL SUMMARY JUDGMENT (Doc. No. 62) (Reply). The Court will grant the Motion because Defendants are entitled to qualified immunity on the First Claim, the Second Claim, the Fourth Claim, the Fifth Claim, the Sixth Claim, and the Seventh Claim.[2]


         Summary judgment is appropriate if the factual record demonstrates that there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a). When applying this standard, the court examines the factual record in the light most favorable to the non-movant. Belhomme v. Widnall, 127 F.3d 1214, 1216 (10th Cir.1997). “[T]he movant need not negate the non-movant's claim, but need only point to an absence of evidence to support the non-movant's claim.” Sigmon v. CommunityCare HMO, Inc., 234 F.3d 1121, 1125 (10th Cir.2000). If the moving party meets this initial burden, the nonmoving party may not rest on his pleadings but must bring forward evidence showing a genuine issue for trial as to those dispositive matters for which the nonmoving party carries the burden. Kannady v. City of Kiowa, 590 F.3d 1161, 1169 (10th Cir. 2010).

         “The doctrine of qualified immunity protects public or government officials ‘from liability for civil damages insofar as their conduct does not violate clearly established statutory or constitutional rights of which a reasonable person would have known.'” Pearson v. Callahan, 555 U.S. 223, 231 (2009) (quoting Harlow v. Fitzgerald, 457 U.S. 800, 818 (1982)). Once a defendant asserts qualified immunity, the plaintiff must satisfy a “strict two-part test.” McBeth v. Himes, 598 F.3d 708, 716 (10th Cir. 2010) (citation omitted). The plaintiff must establish that 1) the defendant violated a constitutional or statutory right and 2) the right was clearly established at the time of the defendant's conduct. Courtney v. Oklahoma ex rel., Dep't of Pub. Safety, 722 F.3d 1216, 1222 (10th Cir. 2013). “If the plaintiff fails to satisfy either part of this two-part inquiry, the court must grant the defendant qualified immunity.” Hesse v. Town of Jackson, Wyo., 541 F.3d 1240, 1244 (10th Cir. 2008) (quotations omitted). But, if the plaintiff succeeds in carrying his two-part burden, the burden shifts to the defendant who must show there are no remaining material issues of fact that would defeat the claim of qualified immunity. Walton v. Gomez, 745 F.3d 405, 412 (10th Cir. 2014).

         While the Court must construe pleadings filed by a pro se litigant liberally, “the courts do not serve as the pro se litigant's advocate, and pro se litigants are expected to follow the Federal Rules of Civil Procedure, as all litigants must.” McDaniels v. McKinna, 96 Fed.Appx. 575, 578 (10th Cir. 2004). In ruling on a motion for summary judgment based on qualified immunity, the Court must keep in mind three principles. First, the Court's role is not to weigh the evidence, but to assess the threshold issue of whether a genuine issue exists as to material facts requiring a trial. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50. Second, the Court must resolve all reasonable inferences and doubts in favor of the non-moving party, and it must construe all evidence in the light most favorable to the non-moving party. See Tolan v. Cotton, 134 S.Ct. 1861, 1866 (2014). Importantly however, “a plaintiff's version of the facts must find support in the record” at the summary judgment stage. Thomson v. Salt Lake Cty., 584 F.3d 1304, 1312 (10th Cir. 2009). Third, the court cannot decide any issues of credibility. See Liberty Lobby, 477 U.S. at 255. At bottom, the non-movant must present evidence “from which a jury might return a verdict in his favor.” Id. at 257. See Gonzales v. Bernalillo Cty. Sheriff's Dep't, CV 16-1045 MCA/GBW, 2017 WL 3208529, at *4 (D. N.M. Apr. 4, 2017) (discussing summary judgment in qualified immunity context), report and recommendation adopted, CV 16-1045 MCA/GBW, 2017 WL 3207798 (D. N.M. May 31, 2017).


         A. Warrant Application and Execution

         On March 10, 2017, SA Daza of the Internal Revenue Service (IRS) Criminal Investigation Unit applied for a warrant to search Plaintiff's residence located at 2124 Altura Verde Ln. NE, Albuquerque, New Mexico. (UMF 1; Mot. Ex. A (Daza Aff.); Mot. Ex. B (Warrant).) United States Magistrate Judge William P. Lynch reviewed (1) the Warrant application, (2) SA Daza's supporting affidavit (Warrant Affidavit); (3) the Warrant itself; and (4) two attachments to the Warrant describing the residence and the items sought. No. 17-mr-0186 (Warrant Case) (UMF 2; Mot. Ex. B attachments A and B.) Magistrate Judge William P. Lynch approved and signed the Warrant on March 10, 2017. See Warrant Affidavit, 17-mr-00186 JHR (Doc. No. 1) (unsealed).

         On March 14, 2017, SA Marshall, SA Hand, and other federal agents executed the Warrant. Plaintiff alleges that the agents told him he “could either go inside and sit, or leave[]” during the search. (See Compl. ¶ 30.) However, Plaintiff adds that since he was only wearing a t-shirt and pajama bottoms and was not allowed to change clothes, he had no real choice but to stay. (Id.) One agent patted down Plaintiff for weapons. (Id. ¶ 27.) During the search, agents seized numerous documents, publications, and electronic storage devices. (UMF 12; Mot. Ex. B.) The Court has described in detail all of the items seized at Plaintiff's residence in its MOO Denying Summary Judgment (Doc. No. 46) at p. 10. On March 16, 2017, SA Daza filed a return and an inventory of items seized at the residence. (Mot. Ex. B (inventory).) As of February 20, 2018, all seized items had been returned to Plaintiff either in original form or in the form of electronic copies. (UMF 13; Mot. Ex. C (Chavez Aff.)).[3]

         B. Warrant Affidavit

         SA Daza prepared the Warrant Affidavit based on “his personal knowledge, his review of documents and other evidence, and his conversations with other law enforcement officers.” (Mot. at 4 citing Mot. Ex. B.) An attorney assigned to IRS Criminal Tax matters reviewed the Warrant Affidavit prior to its submission to Magistrate Judge Lynch. (UMF 8; Mot. Ex. B.) The Warrant Affidavit describes an investigation of “whether Stacy Underwood (UNDERWOOD) and other individuals set up and operated a tax evasion scheme which relies on the use of New Mexico Domestic Limited Liability Companies (LLCs) and bank accounts[.]” (Warr. Aff. ¶ 5.) Several facts were listed as supporting probable cause:

         1. Records from the IRS indicate that Plaintiff had not filed “U.S. Individual Income tax returns for over 20 years and may have never filed.” (Id. ¶ 14.) Underwood had not filed Individual Income tax returns with the IRS since tax year 2004. (Id. ¶ 9.)

         2. In 2005, Plaintiff organized National Business Services, LLC (NBS), a New Mexico LLC, and listed Underwood as the registered agent for NBS. (Id. ¶ 16.) Plaintiff and Underwood used NBS: to set up LLCs; to obtain Employer Identification Numbers (EINs)[4] from the IRS for the LLCs; to open bank accounts for the LLCs using only EINs; and to instruct clients how to deposit and withdraw money from the account to avoid IRS detection. (Id. ¶¶ 3, 5, 6, 16-25.)

         3. “The State of New Mexico does not require the organizer of an LLC to identify the owner of the LLC.” (Id. ¶ 22.) A website associated with NBS advertised “the services provided by NBS[.]” (Id. ¶ 18.) The NBS website describes how to take advantage of New Mexico law to open a financial account for an LLC using only the LLCs identifying information to avoid linking the LLC to its individual owner. (Id. ¶ 21.) Between 2005 and 2016, Plaintiff and Underwood used NBS to organize “hundreds of New Mexico LLCs with the New Mexico Secretary of State.” (Id.) NBS requested EINs for over 50 LLCs from the Internal Revenue Service (IRS). (Id. ¶ 23.)

         4. NBS's website advertises a “Free Asset Protection Training Course, ” on how to “keep your business, income, and property affairs private[.]” (Id. ¶ 19.) Between 2005 and 2016, “Underwood opened at least 50 bank accounts at Bank of America for New Mexico LLCs that she organized. Underwood had signature authority on the accounts and sole signature authority on most of the accounts.” (Id. ¶ 24.) The bank account documents did not identify the owner of the LLC and also did not “contain the SSN for Underwood as the individual in control of the account.” As a result, the bank reported to the IRS financial information only for the LLC. (Id.)

         5. In January 2011, Underwood set up White Top Enterprises, LLC (White Top), a New Mexico LLC owned by Jerry R. Shrock (Shrock). Shrock has not filed individual income tax returns with the IRS for the years 1998-2001; 2003-04; and 2011-2014.[5] (Id. ¶¶ 15, 26, & 31.) Underwood opened a bank account for White Top using only the EIN for White Top and authorizing herself as the only signatory on the account. (Id. ¶ 32.) Between August 2011 and June 2014, the White Top bank account received deposits of over four million dollars from Moark, LLC, a company in the egg production industry. (Id. ¶ 33.) IRS Special Agents learned from an interview with Moark executives that the payments were for installation of specialized equipment and that Moark considered Shrock the owner of White Top. (Id.) Shrock provided Moark a required IRS Form W-9[6] so that Moark could report to the IRS payments made to White Top. However, the Form W-9 contained only White Top's EIN, and Shrock did not sign his name on the form but instead wrote “White Top Enterprises, LLC” on the signature line. (Id. ¶ 34.) Based on the information on White Top's W-9 Form, the IRS would link Moark's payments only to White Top's EIN and not to Shrock individually. (Id.)

         6. Under IRS Publication 3402 (Rev. March 2010), a single member LLC is a disregarded entity for federal income tax purposes and is required to use the owner's SSN or the owner's EIN for reporting purposes. (Id. ¶ 35.)

         7. The funds deposited into the White Top bank account were obtained through the use of debit card transactions, money orders, cash withdrawals from ATMs, and checks signed by Underwood. The funds were used to buy property, to pay credit card balances, and to pay expenses for Shrock and his wife. (Id. ¶¶ 37-42.)

         8. Plaintiff was believed to have been residing at 2124 Altura Verde Ln. NE because (1) utility service was in Plaintiff's name (Id. ¶ 51); (2) Plaintiff had been served a subpoena at that address (Id. ¶ 52); and (3) Internet service for that address was in Plaintiff's name (Id. ¶ 55).

         9. There were numerous messages between email accounts associated with Underwood and Plaintiff. (Id. ¶ 56.) Based on the information from the emails, SA Daza stated that in his experience, business owners like Plaintiff and Underwood who use email also have other business records stored on computers and electronic devices. (Id. ¶¶ 57-58.) Based on information from internet providers, SA Daza opined that computers containing those types of records would be located at 2124 Altura Ln. NE. (Id. ¶ 59.)

         10. Finally, SA Daza stated

I expect that this warrant will be executed reasonably. Reasonable execution will likely involve conducting an investigation on the scene of what computers, or storage media, must be seized or copied, and what computers or storage media need not be seized or copied. Where appropriate, officers will copy data, rather than physically seize computers, to reduce the extent of the disruption. If, after inspecting the computers, it is determined that some or all of this ...

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