United States v. Quiel

1

United States of America, Plaintiff, v. Michael L Quiel, Defendant.

No. CV-21-00094-PHX-GMS

United States District Court, D. Arizona

July 5, 2023

WO

ORDER

G MURRAY SNOW CHIEF UNITED STATES DISTRICT JUDGE

Pending before the Court are the parties' respective Partial Motions for Summary Judgment (Docs. 37, 39). For the reasons below, both motions are denied.

BACKGROUND

Defendant Michael Quiel owned and operated two securities brokerage firms from 1987 until 2001. After that, he worked as an investment banker, venture capitalist, and, eventually, as a hedge fund manager with his business partner Stephen Kerr. Together, Quiel and Kerr helped private companies raise capital and go public in exchange for consulting fees and shares of stock.

At some point in the early 2000s, Quiel began using a Visa card that was linked to a bank account in Belize. He did not report this account to the Internal Revenue Service (“IRS”). In 2005, the IRS became aware of the account and subjected Quiel to an audit, which he settled in 2006 with the help of his then-attorney Christopher Rusch. Around the same time, Quiel opened a second bank account in Belize. On May 31, 2006, Rusch alerted Quiel of deadlines to report the new account to the IRS. Quiel disclosed his interest in the Belize account for the next three years. He did not disclose any additional foreign accounts to the IRS during that time.

In 2006 or 2007, Quiel introduced Kerr and Rusch. On August 2, 2006 Rusch emailed them information about “offshore asset protection programs.” (Doc. 40-5 at 2); (Doc. 38-15 at 35, 20:22.) The message included the following warning: “[offshore asset protection entities and bank accounts require the filing of various tax and informational returns with the U.S. IRS and U.S. Treasury. A CPA or tax attorney familiar with offshore planning should be used to prepare these returns.” (Doc. 40-5 at 3.) Quiel does not dispute that he received this email but stated “there is no record that [he] read and/or responded to” the message. (Doc. 47 at 6.) On September 18, 2006, Rusch asked Quiel and Kerr to sign agreements to form two “Swiss investment funds.” (Doc. 40-5 at 5.) The next day, Quiel returned the agreements (signed in his wife's name) and sent Rusch a wire that he claims was “to fulfill a retainer agreement for Rusch's representation to keep us tax-compliant.” (Id. (internal punctuation omitted)); (see also Doc. 47 at 7.)

Rusch traveled to Switzerland, and, on October 4, 2006, he emailed Quiel and Kerr that once a corporate “structure was in place and agreed upon,” the three of them could make a second trip to “open accounts and meet the representatives.” (Doc. 40-5 at 14.) Rusch's message noted that he would send Quiel and Kerr “bank documents” to start the formation process “on Friday.” (Id.) On October 12, 2006, Rusch emailed Quiel and Kerr again and confirmed that he was forming two Swiss corporations: one that would operate as a venture capital fund and another to hold “your personal assets that will grow tax free in Switzerland, out of the reach of creditors, and separated by a wall of privacy from your corporate assets.” (Doc. 40-5 at 16.) This email noted that the proposed structure was “very clean” and mentioned that, although Rusch's proposed structure “assume[d] (per our conversations) that you do not want to disclose the Swiss Corp,” if Quiel wanted to “be a director or manager” of the venture fund he “could report the FBAR with little other reporting requirements.” (Id.)

On October 23, 2006, Rusch emailed Quiel and Kerr again and told them he would open their personal accounts and needed them to wire $500,000. (Doc. 40-5 at 98.) Quiel claims he never wired this money. (Doc. 47-2 at 9.) The next day, Rusch told Quiel and Kerr to send their birth dates and passports, which Quiel sent on October 30, 2006. (Doc. 40-5 at 22.) In late 2006, Quiel began transferring Rusch stock. (Doc. 40-1 at 29, 22:24.) Plaintiff claims the stock was transferred for Rusch to deposit into the accounts he set up for Quiel and Kerr. Quiel claims that he believed the stock was being transferred into Rusch's own Swiss bank accounts and, in exchange, Quiel would receive introductions to European bankers.

Whatever the purpose of the transfers, the parties agree that, at Rusch's direction, an individual named Arno Arndt created two Swiss corporations on Quiel and Kerr's behalf: Legacy Asset Management AG (“Legacy”) and Swiss International Trust Company AG (“Swiss International”). The parties also agree that an individual named Pierre Gabris opened four accounts at UBS AG (“UBS”) and Pictet & Cie SA (“Pictet”), which according to bank statements, contained the following year-end balances as of January 1, 2007, and January 1, 2008:

Account

Accountholder

2007 Balance (Stock Value)

2008 Balance (Stock Value)

UBS #-1090

Legacy

$ 850,263.00

$ 612,300.00

UBS #-9732

Legacy

$ 87, 970.00

$ 0.00

UBS #-2363

Swiss International

$ 1,314,971.00

$237,879.00

Pictet #-2625

Legacy

$ 501,691.00

$ 983,518.00

Gabris apparently listed Quiel and Kerr as the accounts' beneficial owners by using the passports and birth dates they sent to Rusch. In December 2006, Quiel and Kerr met with representatives from Pictet and UBS. Quiel testified that it was fair to say he was “on notice that one of the objectives of the meeting with the UBS representatives would be to . . . open an account.” (Doc. 40-1 at 31, 22:25, at 32, 1:4.) He also admits that he signed a form at Pictet that gave the bank permission to send him information about the account. Account statements from the banks identify Quiel as a beneficial owner of three accounts: UBS #-1090, UBS #-2363, and Pictet #-2625. Quiel also testified that he would periodically tell Rusch what to do with the stock in the accounts. (Doc. 40-1 at 33, 22:25, at 34, 1:3.) Nevertheless, Quiel alleges that “he did not know he had an interest in any other foreign account(s) aside from his Belize account.” (Doc. 47 at 17.)

According to Quiel, the accounts were designed to raise venture funds from foreign investors, which would then be invested in companies in the United States. According to Plaintiff, Rusch created the accounts using nominees to obscure Quiel and Kerr's ownership interests so the men could avoid tax liability. Although Quiel maintains that Rusch repeatedly assured him the accounts complied with applicable tax laws, he did not report them to the IRS in 2007 or 2008.

In 2011, a federal grand jury indicted Quiel and Kerr on charges of conspiracy to defraud the United States, willful subscription to false individual tax returns, and willful failure to file Reports of Foreign Bank and Financial Accounts (“FBARs”). On April 11, 2013, Quiel and Kerr were acquitted of the conspiracy charges, but both were convicted of willful subscription to false individual tax returns. Kerr was criminally charged for willfully failing to file FBARs, but the jury did not return a verdict for Quiel on those charges. However, on January 29, 2019, the IRS assessed civil penalties against Quiel for willfully failing to report the four UBS and Pictet accounts on his 2007 and 2008 FBARs. The pending partial motions for summary judgment arise from this assessment.

DISCUSSION

I. Partial Motions for Summary Judgment

This case is an action to reduce a penalty to a judgment. Such an action is authorized under 31 U.S.C. § 5321(a)(5), which states that the Secretary of Treasury may “impose a civil money penalty on any person who violates, or causes any violation of section 5314.”^[1] “Courts have concluded the validity of the underlying civil penalty is one element of an action to reduce a penalty to judgment.” United States v. Pomerantz, No. C16-0689JLR, 2017 WL 2483213, at *4 (W.D. Wash. June 8, 2017). Thus, in its current motion for partial summary judgment, Plaintiff asks the Court to affirm the IRS's determination that Quiel willfully failed to report the UBS #-1090, UBS #-2363, UBS #-9732, and Pictet #-2625 accounts on his 2007 and 2008 FBARs, and, therefore, is liable for civil penalties.

A. Procedural Standard

A court must grant summary judgment if “there is no genuine issue as to any material fact and [] the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). On a motion for summary judgment, the movant bears the burden of establishing the absence of genuine issues of material fact. Celotex, 477 U.S. at 323; Devereaux v. Abbey, 263 F.3d 1070, 1076 (9th Cir.2001) (en banc). In its analysis, the Court must view the evidence in the light most favorable to the nonmovant and draw all reasonable inferences in his favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986).

B. Willful Failure to File FBARs

U.S citizens (like Quiel) must report their financial interests in foreign bank accounts “for each year in which such relationship exists” and must “provide such information as shall be specified in a reporting form prescribed under 31 U.S.C. 5314.” United States v. Boyd, 991 F.3d 1077, 1082 (9th Cir. 2021) (quoting 31 C.F.R. § 1010.350(a)) (cleaned up). The proper form for filing this report is the FBAR. Id. (quoting 31 C.F.R. § 1010.350(a)). An FBAR must “be filed . . . on or before June 30 of each calendar year with respect to foreign financial accounts exceeding $10,000 maintained during the previous calendar year.” Id. (quoting 31 C.F.R § 1010.306(c)). To prove liability for the FBAR assessments against Quiel, Plaintiff must prove, by a preponderance of the evidence, that (1) Quiel was a U.S. citizen; (2) with a financial interest in (or authority over) each of the foreign financial accounts; (3) that contained an aggregate balance exceeding...