Neuberger, Quinn, Gielen, Rubin & Gibber, P.A. v. United States

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NEUBERGER, QUINN, GIELEN, RUBIN & GIBBER, P.A. Plaintiff, v. UNITED STATES OF AMERICA, Defendant.

Civil Action No. EA-22-2129

United States District Court, D. Maryland

June 28, 2024

MEMORANDUM OPINION

Erin Aslan United States Magistrate Judge

Plaintiff Neuberger, Quinn, Gielen, Rubin & Gibber, P.A. (NQGRG) initiated this action on August 23, 2022, challenging a tax levy by Defendant United States of America and seeking injunctive and monetary relief, damages, and costs pursuant to 26 U.S.C. §§ 7426 and 7430. ECF No. 1. Pending before the Court are NQGRG's Renewed Motion for Summary Judgment (ECF No. 67), the United States' Cross-Motion for Partial Summary Judgment (ECF No.70), and related motions to seal (ECF Nos. 69 and 71). The issues are fully briefed (ECF Nos. 67-71, 75, and 77), and a hearing on the motions was held on May 30, 2024 (ECF No. 86). For the reasons set forth below, NQGRG's motion is denied, the United States' motion is granted, and the motions to seal are denied.

I. Background

NQGRG and the United States present starkly different accounts of the material facts in their summary judgment filings. Compare ECF No. 67-1 at 10-13 with ECF No 70-1 at 14-24.^[1]In essence, NQGRG contends that it is a well-respected law firm that provided business and tax advice to its client Lehcim Holdings, Inc. (Lehcim), whose beneficial owner is Michel Konig, and that the Internal Revenue Service (IRS) unlawfully levied funds in NQGRG's bank account to satisfy Lehcim's federal tax liability. ECF No. 67-1 at 10-12. The United States, on the other hand, contends that NQGRG incorporated and ran Lehcim for the purpose of generating unlawful tax deductions for Mr. Konig, and that principals of NQGRG transferred assets out of Lehcim to avoid payment of federal tax liabilities. ECF No. 70-1 at 13. Suffice to say, disputed issues of material fact abound. What follows is a brief synthesis of what the Court understands to be the undisputed facts that frame the parties' legal claims.

For more than 30 years, NQGRG has been a law firm organized as a Maryland professional association with a principal place of business in Baltimore. ECF Nos. 1 ¶¶ 2 and 6, 13 ¶¶ 2 and 6. Lehcim is a Maryland corporation that NQGRG incorporated in 2001 on behalf of Mr. Konig, one of NQGRG's clients, who is the beneficial owner of Lehcim. ECF Nos. 1 ¶ 8, 13 ¶ 8, 67-4 at 4, 70-3 at 7, 70-4 at 8, and 70-7. Lehcim's articles of incorporation list its principal office as that of NQGRG and its resident agent as Hillel Tendler, one of NQGRG's principals. ECF Nos. 70-2 at 5 and 70-7 at 1. NQGRG is not a shareholder or owner of Lehcim, although throughout Lehcim's existence Mr. Tendler has served as a corporate officer and Issac Neuberger, another NQGRG principal, has served as an officer and Lehcim's sole director. ECF Nos. 67-4 at 5, 70-2 at 28-29, 70-3 at 10, 70-5 at 21, and 70-8 at 1. Lehcim does not have a separate bank account of its own and from 2010 through 2015, NQGRG and Lehcim filed separate income tax returns. ECF Nos. 1 ¶ 12, 13 ¶ 12, and 70-3 at 19.

On May 12, 2022, the IRS served a Notice of Levy on PNC Bank to satisfy Lehcim's tax liabilities from 2010 through 2015. ECF Nos. 67-2 at 2, 70-4 at 11, and 70-39 at 9. The Notice of Levy identified the taxpayer as “Neuberger, Quinn, Gielen, Rubin, & Gribber, P.A., Alter Ego of Lehcim Holdings, Inc,” and indicated that NQGRG had a tax liability in the amount of $1,543,929.29. ECF Nos. 67-2 at 2 and 70-39 at 9. On the same date that the Notice of Levy was served, PNC Bank froze the levied funds in NQGRG's account. ECF Nos. 1 ¶ 21 and 13 ¶ 21.

On June 2, 2022, NQGRG filed a Collection Appeal Request challenging the levy and requesting a conference with the IRS Independent Office of Appeals. ECF No. 70-39 at 1-2. In this request, NQGRG argued that it was not Lehcim's alter ego and that the levy violated “multiple subsections of I.R.C. § 7803(a)(3), i.e., the Taxpayer Bill of Rights.” Id. at 3. NQGRG addressed the Collection Appeal Request to an IRS Revenue Officer and requested that if the levy were not reversed, the Collection Appeal Request be forwarded to the IRS Independent Office of Appeals. Id. at 4. NQGRG subsequently initiated this wrongful levy action on August 23, 2022.

II. Discussion

Pending before the Court are cross-motions for full and partial summary judgment and accompanying motions to seal. ECF Nos. 67 and 69-71. Each motion is addressed in turn below.

A. Motions to Seal

The Court entered a Confidentiality Order in this action (ECF No. 46), which governs confidential information exchanged in discovery. Among other things, it directs the parties to file any materials subject to the Confidentiality Order with an interim sealing motion. ECF No. 46 ¶ 2. Consistent with the relevant terms of the Confidentiality Order, the parties' summary judgment motions are accompanied by interim sealing motions. ECF Nos. 69 and 71. NQGRG seeks to file Exhibits 6 and 7 to its motion under seal, whereas the United States asserts that neither its motion nor any of the accompanying exhibits should be sealed. ECF Nos. 69 and 71 at 1.

The designation of confidential materials has been the subject of debate in this action. See ECF Nos. 52, 54, 57, 72, 76, 77, and 83. Regardless of the merits of the confidentiality designations in the course of discovery, the Court must consider the propriety of sealing summary judgment filings separately because of the public's right of access to court filings. As the Fourth Circuit has observed, “discovery, which is ordinarily conducted in private, stands on a wholly different footing than does a motion filed by a party seeking action by the court.” Rushford v. New Yorker Mag., Inc., 846 F.2d 249, 252 (4th Cir. 1988) (holding that documents filed in support of summary judgment would be unsealed despite having been produced pursuant to a protective order in discovery). Accordingly, “the district court must address the question [of sealing] at the time it grants a summary judgment motion and not merely allow continued effect to a pretrial discovery protective order.” Id. at 253.

The public's right of access to the courts and court records is paramount. “Transparency is not only important for its own sake. It is integrally linked to the need of courts to maintain public trust.” Doe v. Sidar, 93 F.4th 241, 250 (4th Cir. 2024) (Wilkinson, J., concurring). This important right “springs from the First Amendment and the common-law tradition that court proceedings are presumptively open to public scrutiny.” Doe v. Pub. Citizen, 749 F.3d 246, 265 (4th Cir. 2014). Key to the Court's analysis is the source of the right of public access, for “the strength of the right of access varies depending on whether the public's right of access to the document or proceeding derives from the common law or the First Amendment.” United States v. Doe, 962 F.3d 139, 145 (4th Cir. 2020). Under the common law, the “presumption of access . . . can be rebutted if countervailing interests heavily outweigh the public interests in access.” Rushford, 846 F.2d at 253. “Under the First Amendment, on the other hand, the denial of access must be necessitated by a compelling government interest and narrowly tailored to serve that interest.” Id. Thus, the “public's right to access documents under the First Amendment is narrower in scope but stronger in force.” United States v. Doe, 962 F.3d at 145. The Court of Appeals for the Fourth Circuit has “squarely held that the First Amendment right of access attaches to materials filed in connection with a summary judgment motion.” Doe v. Pub. Citizen, 749 F.3d at 267; see also Springs v. Ally Fin. Inc., 684 Fed.Appx. 336, 338 (4th Cir. 2017). This is because “summary judgment adjudicates substantive rights and serves as a substitute for a trial.” Rushford, 846 F.2d at 252.

The United States does not assert any compelling basis for sealing its motion and related exhibits. In fact, it affirmatively states that its filings should not be sealed. ECF No. 71 at 1. NQGRG also does not assert any compelling basis or argument for sealing Exhibits 6 and 7 to its motion. Instead, it references only the Confidentiality Order that governed discovery and a desire to “maintain the confidentiality of this material.” ECF No. 69 at 1. Exhibits 6 and 7 to NQGRG's motion (ECF No. 68-1) consist of emails sent by Mr. Neuberger seeking payment for services rendered and an internal NQGRG email regarding outstanding client payments and its impact on Mr. Tendler's compensation. Nothing about these emails suggests a compelling interest in sealing; a substantial probability that, in the absence of sealing, a compelling interested would be harmed; or that there are no alternatives to sealing that would adequately protect the compelling interest. See United States v. Doe, 962 F.3d at 146. Additionally, pursuant to Local Rule 105.11, the parties have not indicated that they wish to withdraw any of the filings that were sealed on an interim basis pursuant to the Confidentiality Order. Therefore, as stated on the record at the outset of the May 30, 2024 motion hearing, the motions to seal are denied.

B. Summary Judgment Standard of Review

Summary judgment motion practice “is properly regarded . . . as an integral part of the Federal Rules as a whole, which are designed ‘to secure the just, speedy and inexpensive determination of every action.'” Celotex Corp v. Catrett, 477 U.S. 317, 327 (1986) (quoting Fed.R.Civ.P. 1). Federal Rule of Civil Procedure 56 provides that the district court “shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). “By its very terms, this...