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United States v. Bauer

United States District Court, D. Arizona

October 10, 2018

United States of America, Plaintiff,
Duane H. Bauer, et al., Defendants.


          Honorable John J. Tuchi United States District Judge

         At issue is Plaintiff the United States's Motion to Enforce a Settlement Agreement (Doc. 43, Mot.) to which pro se Defendants Duane Bauer and Catherine Bauer each filed a Response (Doc. 48, 49, Resp.), and the United States filed Replies (Docs. 50, 51, Reply). Also at issue is Defendants' Motion for Telephonic Conference regarding the settlement. (Doc. 45.)

         I. BACKGROUND

         On March 10, 2017, the United States filed a Complaint and alleged the following. (Doc. 1, Compl.) Duane Bauer did not file tax returns for the years 2001 through 2004. (Compl. ¶ 14.) The Internal Revenue Service (IRS) sent notices for those years, and Mr. Bauer did not challenge the deficiencies. (Compl. ¶ 15.) As of the date of the complaint, Mr. Bauer owed $883, 071.92 in outstanding taxes, penalties, and interest. (Compl. ¶ 15.) Federal tax liens attached to Mr. Bauer's property pursuant to 26 U.S.C. §§ 6321 and 6322. (Compl. ¶ 19.) The primary property subject to liens is a home at 2640 S. Star Trail Ridge in Cornville, Arizona. (Compl. ¶ 9.) While Mr. Bauer owns the home, [1] his wife Catherine Bauer was also named as a Defendant because she could claim an interest in the property, having invested in renovations upon her marriage to Mr. Bauer. (Compl. ¶ 6; Doc. 16, CB Ans.)

         The United States's attorney, Alexander Stevko, and Defendants began discussing a possible settlement in December 2017. (Doc. 43-1, Stevko Aff.) Mr. Stevko and Defendants spoke by phone on March 7, 2018, coming to the preliminary terms of a settlement agreement. (Stevko Aff. ¶ 4.) After that conversation, on March 23, 2018, Mr. Stevko sent Defendants a letter containing the terms they had discussed. (Doc. 43-2, Ex. A, Letter.)

         The March 23 letter proposed a deal under which Defendants would take out a home equity loan on the Star Trail Ridge property and use the loan to pay the United States at least $250, 000 of Mr. Bauer's unpaid taxes within six months. (Letter at 2.) Upon receipt of the $250, 000, the United States would “subordinate - but not release - its liens against the Subject Property in favor of the lien arising from the loan.” (Letter at 2.) The United States also promised to “withdraw, without prejudice, the order of foreclosure and its foreclosure claim at this time, ” with the condition that if it did not receive $250, 000 within six months, foreclosure proceedings would resume. (Letter at 2.) The deal was not intended as a complete settlement, but after payment of the initial $250, 000, “the parties [would be] free to negotiate future payment plans and potential collection.” (Letter at 2.) In exchange for the delay of foreclosure proceedings, Defendants would have to agree to entry of judgment against Mr. Bauer in the amount of $845, 000. (Letter at 3.) Additionally, Mrs. Bauer would have to declare her interests in the property to be subordinate to the federal tax liens. (Letter at 2.)

         By its own terms, the “letter [was] not an offer or an acceptance of an offer, but a restatement of the terms as [the United States] understand[s] them.” (Letter at 1.) The language indicated that, by signing, Defendants were making an “offer to the United States, ” which would then “consider and act on the settlement offer once it has received [their] signature making the offer.” (Letter at 1.)

         After receiving the letter, Defendants called Mr. Stevko to discuss it. Mr. Stevko alleges that he “said they could make the offer by signing and returning it to me, ” and that “they did not have to sign it, but if we did not reach a settlement, the government would pursue summary judgment.” (Stevko Aff. ¶ 6.) But Mr. Bauer alleges that he did not understand the process or that his signature would constitute a binding offer. (Doc. 48, DB Resp. at 2.) Defendants also claim that Mr. Stevko presented them with two options: accept the agreement or have their home foreclosed upon immediately. (DB Resp. at 3.) They also allege that Mr. Stevko convinced them they could obtain a home loan for $300, 000, when in reality, they were only able to secure at most $126, 000. (CB Resp. at 5, 7.) Nevertheless, Defendants signed the letter on March 23, 2018. (Doc. 43-3, Exh. B.) They returned the signed copy to Mr. Stevko via email, with the subject line “agreement.” (Stevko Aff. ¶ 7.)

         On March 30, 2018, an agent of the United States accepted the offer and Mr. Stevko sent notice of the acceptance to Defendants via mail and email. (Doc. 43-4, Ex. C.) In April 2018, Mr. Stevko twice sent Defendants a draft stipulated judgment and order of sale, but they never responded. (Stevko Aff. ¶ 9.) After receiving an email from Mr. Bauer stating that he no longer planned to honor the offer, the United States filed a Motion to Enforce the Settlement on June 1, 2018. (Stevko Aff. ¶ 10.) On June 4, Mr. Bauer filed a Motion for Telephonic Conference regarding the settlement (Doc. 45), which the United States opposes (Doc. 47).


         The Court has the discretion to decide motions without oral argument. LRCiv 7.2(f). In evaluating a motion to enforce a settlement agreement, the Court must decide whether the agreement is an enforceable contract between the parties. Jeff D. v. Andrus, 899 F.2d 753, 759 (9th Cir. 1989) (“An agreement to settle a legal dispute is a contract and its enforceability is governed by familiar principles of contract law.”) Where the United States is a party to a contract, the Court interprets it under federal law. United States v. Allegheny County, 322 U.S. 174, 183 (1944) (“The validity and construction of contracts through which the United States is exercising its constitutional functions . . . all present questions of federal law not controlled by the law of any state.”). In order to show a contract exists, “[o]ne must show (1) mutuality of intent to contract; (2) consideration; and (3) lack of ambiguity in offer and acceptance.” D & N Bank v. United States, 331 F.3d 1374, 1378 (Fed. Cir. 2003).

         III. ANALYSIS

         The Court finds no need for a telephonic conference in this matter, as both parties have adequately provided their arguments in the form of a Motion, Response, and Reply. See LRCiv 7.2(f).

         Defendants seem to argue that there was no mutual intent to form a contract, but that claim is contradicted by their recounting of the events leading up to the agreement. Mr. Bauer points to language in the letter stating “‘this is not an offer, or an[] acceptance of an offer, '” claiming “that is just how [he] understood it.” (DB Resp. at 6.) But in the very next sentence, the letter goes on to say, “[y]ou may make this offer to the United States by signing below and returning this letter to the United States. The United States will consider and act on the settlement offer once it has received your signature making the offer.” (Letter at 1.) Additionally, before Defendants signed the letter, Mr. Stevko “called first [Mr. Bauer] and made sure [Mrs. Bauer] was present and he discussed what will be in the Settlement letter.” (CB Resp. at 4.) And when ...

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