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UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF GEORGIA ATLANTA DIVISION

UNITED STATES OF AMERICA, Plaintiff, v. THOMAS J. LAWLER, Defendant.

) ) ) ) ) Civil No. 1:10-mi-0045-CAP-CCH ) ) ) ) )

UNITED STATES OF AMERICAS MOTION TO ADJUDICATE THOMAS J. LAWLER IN CIVIL CONTEMPT The United States of America (the United States) hereby moves the Court for an Order of Contempt against Defendant Thomas J. Lawler for his failure to abide by this Courts April 1, 2010 Order (Docket No. 13) enforcing certain administrative summonses against him. The grounds for this Motion are set forth more fully in the attached Memorandum of Law.

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This 28th day of June, 2010. Respectfully submitted, SALLY QUILLIAN YATES United States Attorney /s/ Darcy F. Coty DARCY F. COTY Georgia Bar No. 259280 Assistant United States Attorney Northern District of Georgia Richard B. Russell Federal Building 75 Spring Street, S.W., Suite 600 Atlanta, GA 30303 (404) 581-6043 Telephone (404) 581-6181 fax darcy.coty@usdoj.gov BRIAN H. CORCORAN (admitted pro hac vice) Trial Attorney, Tax Division U.S. Department of Justice Post Office Box 7238 Washington, D.C. 20044 Telephone: (202) 353-7421 Fax: (202) 514-6770 Brian.H.Corcoran@usdoj.gov

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UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF GEORGIA ATLANTA DIVISION UNITED STATES OF AMERICA, Plaintiff, v. THOMAS J. LAWLER, Defendant. ) ) ) ) ) Civil No. 1:10-mi-0045-CAP-CCH ) ) ) )

MEMORANDUM OF LAW BY UNITED STATES OF AMERICA IN SUPPORT OF ITS MOTION TO ADJUDICATE THOMAS J. LAWLER IN CIVIL CONTEMPT The United States of America (the United States), in support of its Motion seeking an Order of Contempt against Defendant Thomas J. Lawler for his failure to abide by this Courts April 1, 2010 Order (Docket No. 13) enforcing certain administrative summonses against him, hereby states as follows: FACTS As the Court is aware, in 2009 the IRS served two administrative summonses on Lawler in connection with its investigation into his promotion of certain tax avoidance schemes. Because Lawler ignored the two summonses, in February 2010 the United States, by Order to Show Cause, petitioned to compel Lawlers cooperation

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with the summonses. On April 1, 2010, after Lawler had been provided a reasonable opportunity to raise objections to the United States petition but failed to do so, and after a hearing on the matter at which Lawler appeared with counsel, this Court entered its Order enforcing both summonses against Lawler. Indeed, the Court specifically determined that Defendant Lawler failed to meet his burden of challenging the summonses, failing to allege any specific facts or introduce any evidence. (Order at 11). The Court thus ordered that Lawler produce all documents responsive to the two administrative summonses served upon him by the IRS no later than 30 days after the issuance of this order, (Order at 6), or by May 1, 2010. Nothing contained in the Order enforcing the two summonses modified their language or limited in scope their requests in light of articulated objections - Lawler in fact never raised any such objections because he failed to file any substantive written response to the United States petition in a timely fashion. (Lawler did file a motion to dismiss on jurisdictional grounds, but it was denied). Accordingly, Lawler was and is obligated to produce all items requested in the two summonses. Lawler appeared for an interview with the IRS on April 28, 2010, and produced some materials in response to the summonses. (See Declaration of Revenue Agent
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Phil Rampey (hereinafter Rampey Decl.), dated June 17, 2010, a true copy of which is attached as Exhibit A, at 2). However, his production of responsive documents to date remains woefully insufficient. First, Lawler has yet to produce copies of bank statements from 2007 and 2008 for accounts for which he or his wife, Diane Lawler, had check signing authority. At best, he has slowly begun the process of obtaining such bank records sought by the Government. (See Attachment 3 to April 30, 2010 correspondence from Lawlers counsel, a true copy of which is attached as Exhibit B). But in the past six weeks since the April 28th meeting, no such materials have been produced to the IRS. (Rampey Decl. 3). Second, the administrative summonses also requested that Lawler produce copies of the products (meaning documentary information and step-by-step instructions) that Lawler sold to customers and which the IRS believes were used to instruct them on how to evade their income tax obligations. (Rampey Decl. 4). Even though the Courts Order indicated that he was to comply with the summonses and did not limit them in any way, Lawler has since objected, claiming that he did not sell products and therefore had nothing to produce to the IRS. (Id. 5; Exhibit B). Notably, although Lawler has admitted he could simply provide the IRS the code necessary for it to access the materials on his website itself (which purportedly would
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save him the trouble of producing actual paper copies), he has refused to do this as well. (Rampey Decl. 5). Finally, the administrative summonses requested that Lawler provide a list of customers who had purchased the products referenced above. (Rampey Decl. 6). To date, however, Lawler has identified only 15 such individuals, despite the fact that he is believed to have 3,000 members of his organization, and therefore likely many more customers who purchased the materials to which he sells access. (Id. 7). It appears Lawler intends to appeal this particular aspect of the Courts Order - in his recently-filed Statement of Issues on Appeal, dated June 8, 2010 (Docket No. 23), Lawler characterized the relevant summons as a John Doe summons issued without complying with the requirements of 26 U.S.C. 7609. To date, however, Lawler has not moved to stay enforcement of the Summons Order, and therefore cannot invoke the appeal to avoid complying with the Orders terms in this respect. ARGUMENT I. Lawler is in contempt of the Summons Order. A district court has the inherent power to enforce its orders through civil contempt. Citronelle-Mobile Gathering, Inc. v. Watkins, 943 F.2d 1297, 1301 (11th Cir. 1991) (citing Shillitani v. United States, 384 U.S. 364, 370 (11th Cir. 1991)). The
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purpose of civil contempt is to coerce obedience to a court order or to compensate the complainant for losses sustained as a result of the contumacy. Cromer v. Kraft Foods North America, Inc., 390 F.3d 812, 821 (4th Cir. 2004) (internal quotations omitted); see also In re Chase & Sanborn Corp., 872 F.2d 397, 400-401 (11th Cir. 1989). A finding of civil contempt is proper when a party disobeys a specific and definite court order by failing to take all reasonable steps within his or her power to comply. United States v. Straub, 508 F.3d 1003, 1009 (11th Cir. 2007), citing Willy v. Coastal Corp., 503 U.S. 131, 139 (1992) and Gompers v. Buck's Stove and Range Co., 221 U.S. 418, 441-42 (1911). Civil contempt may be imposed in an ordinary civil proceeding upon notice and an opportunity to be heard. United States v. Ayres, 166 F.3d 991, 995 (9th Cir. 1999). The United States, as the moving party, bears the initial burden of showing by clear and convincing evidence that (1) a valid court order was in effect; (2) the order was clear and unambiguous; and (3) the alleged violator could have complied with the courts order, had he chosen to do so. Taylor v. Teledyne Technologies, Inc., 338 F. Supp.2d 1323, 1345-46 (N.D.Ga. 2004) (citations omitted); see also Howard Johnson Co., Inc. v. Khimani, 892 F.2d 1512, 1516 (11th Cir.1990) (citations omitted). This
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clear and convincing evidence standard is more exacting than the preponderance of the evidence standard but, unlike criminal contempt, does not require proof beyond a reasonable doubt. In Re Jove Engineering, Inc. v. Internal Revenue Service, 92 F.3d 1539, 1545 (11th Cir. 1996). If the United States makes a prima facie showing that this Courts Summons Order was violated, the burden of production shifts to Lawler to establish a present inability to comply that goes beyond a mere assertion of inability. Howard Johnson Co., 892 F.2d at 1516 (internal marks and citations omitted). In meeting such burden of production, a respondent is barred, under the principle of res judicata, from raising in this contempt proceeding any issue that was or could have been raised at the enforcement hearing. United States v. Rylander, 460 U.S. 752, 756-57 (1983). Rather, the respondent must introduce specific evidence supporting his claimed inability to comply - not relitigate the legal propriety of the underlying order. Citronelle-Mobile Gathering, Inc. 943 F.2d at 1301; Maggio v. Zeitz, 333 U.S. 56, 69 (1948) ("[A] contempt proceeding does not open to reconsideration the legal or factual basis of the order alleged to have been disobeyed and thus become a retrial of the original controversy."). Here, all of the factors establishing grounds for a finding of civil contempt are
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satisfied. The Summons Order was issued in April 2010 and served on Lawler via its ECF filing, notice of which was received by his counsel appearing in this case on his behalf. Indeed, reflecting his awareness of the Order, Lawler subsequently filed a notice of appeal of the Order in May 2010. (Docket No. 19). The validity of the Summons Order, and Lawlers awareness of it, are beyond dispute. The Summons Orders language was also unambiguous. Lawler failed to oppose the Show Cause Petition in a timely fashion and raised no arguments in opposition against it, so the two summonses were enforced against him without limitation. He was obligated to produce the materials set forth in the summonses by the end of April. He has failed to do so. Given the above, the sole open factor that the United States must satisfy to establish grounds for civil contempt is whether Lawler could comply with the terms of the Summons Order. The answer is yes. For over two months, Lawler has been aware of the Courts Order. His knowledge of the two summonses and the materials they request goes back nearly a year. He therefore has had more than sufficient time to comply with the summonses. Lawler has also been made aware of the

Governments view that his compliance was inadequate. Several times, counsel for the United States has asked Lawlers counsel to produce the withheld materials, to no
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avail. (See, e.g., Letter from United States Counsel to Lawlers counsel, dated April 30, 2010, a true copy of which is attached as Exhibit C). Lawler cannot invoke the fact that he has appealed the Summons Order as grounds for resisting enforcement of its terms against him. Filing of a Notice of Appeal does not act as an automatic stay with respect to a partys obligation to adhere to the terms of a court order. Fed. R. Civ. P. 62(b); see also Niken v. Holder, ___ U.S.___, 129 S. Ct. 1749, 1757 (2009) (finding a stay pending appeal is not a matter of right, even if irreparable injury might otherwise result to the appellant if the underlying order is allowed to be enforced) (quoting Virginian R. Co. v. United States, 272 U.S. 658, 672 (1926)). Lawler has not, for his part, moved to stay enforcement. As a result, the Summons Order remains valid, and Lawler must comply with its terms - or face sanctions for his contempt. II. The Court should impose a coercive daily monetary fine and award compensatory damages. A district court has broad discretion to fashion sanctions in a contempt proceeding. In re General Motors Corp., 61 F.3d 256, 259 (4th Cir. 1995). A judgment of civil contempt is coercive in nature and is entered to achieve full compliance with a court's order or to compensate a party for losses or damages sustained by the noncompliance. See Maggio, 333 U.S. at 67-68; Cromer, 390 F.3d
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at 821. When devising sanctions to ensure compliance with its order, a courts choices should be based on the nature of the harm and the probable effect of alternative sanctions. N.A. Sales Co., Inc. v. Chapman Industries Corp., 736 F.2d 854, 857 (2d Cir.1984). Appropriate sanctions may include a coercive daily fines and/or coercive incarceration. United States v. Chastain, No. 6:06-cv-50, 2007 WL 737511, at *2 (M.D. Ga. March 7, 2007). Compensatory fines may also be awarded to the movant, but only to compensate for actual losses resulting from the improper behavior. In re General Motors Corp., 61 F.3d 256 at 259. The United States requests coercive sanctions against Lawler if he fails to purge himself of the ongoing contempt prior to a hearing on the matter and establish with adequate proof that he has done so and will continue to do so. Specifically, the United States recommends a coercive fine beginning at $500 per day within two business days of the signing of a contempt order, and increasing to $2,000 per day after ten days, to ensure that Lawler complies with the Court's order. A fine at this level is appropriate considering the delay Lawler inflicts upon the IRS investigation through his refusal to comply with the Summons Order. The United States further asks the Court to require that Lawler pay the fine daily to the Clerk by
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2 p.m. on days the Court is open, and to pay all fines accrued when the Court is closed by the same time on the next court day. This fine should continue until Lawler purges himself of his contempt. See General Signal v. Donallco, Inc., 768 F.2d 1376, 1380 (9th Cir. 1986). Courts may also impose the coercive sanction of imprisonment. The Supreme Court has stated that courts have the power to impose conditional imprisonment for the purpose of compelling a person to obey a valid order. Uphause v. Wyman, 360 U.S. 72, 81 (1959) (ordering confinement until documents requested by subpoena are produced). If Lawler continues to defy the Court after twenty days of paying coercive fines, the United States asks the Court to impose coercive incarceration upon Lawler until he purges himself of his contempt. Finally, the United States asks the Court for compensatory sanctions, payable to the United States, to compensate it for injuries resulting from the contemptuous behavior if Lawler fails to purge himself of his contempt prior to a hearing on the matter. See General Signal, 787 F.2d at 1380. Specifically, in the event Lawler has not purged himself of his contempt, the United States asks the Court to require Lawler to reimburse the United States for the costs, including attorney's fees and travel costs, incurred in bringing this motion and attending any related hearing. Lawler has had
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ample opportunity to comply with the Court's Summons Order. But his halfmeasures, and half-hearted compliance, should no longer be tolerated. CONCLUSION For the foregoing reasons, the United States respectfully requests that the Court enter an order enforcing certain administrative summonses against Lawler. This 28th day of June, 2010. Respectfully submitted, SALLY QUILLIAN YATES United States Attorney /s/ Darcy F. Coty DARCY F. COTY Georgia Bar No. 259280 Assistant United States Attorney Northern District of Georgia Richard B. Russell Federal Building 75 Spring Street, S.W., Suite 600 Atlanta, GA 30303 (404) 581-6043 Telephone (404) 581-6181 fax darcy.coty@usdoj.gov BRIAN H. CORCORAN (admitted pro hac vice) Trial Attorney, Tax Division U.S. Department of Justice Post Office Box 7238 Washington, D.C. 20044
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Telephone: (202) 353-7421 Fax: (202) 514-6770 Brian.H.Corcoran@usdoj.gov

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UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF GEORGIA ATLANTA DIVISION UNITED STATES OF AMERICA, Plaintiff, v. THOMAS J. LAWLER, Defendant. ) ) ) ) ) Civil No. 1:10-mi-0045-CAP-CCH ) ) ) )

CERTIFICATE OF COMPLIANCE I hereby certify, pursuant to Local Rules 5.1B and 7.1D, that the foregoing brief, has been typed using Times New Roman, 14 point. This 28th day of June, 2010. /s/ Darcy F. Coty Darcy F. Coty Assistant United States Attorney

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UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF GEORGIA UNITED STATES OF AMERICA, Plaintiff, v. THOMAS J. LAWLER, Defendant. ) ) ) ) ) Civil No. 1:10-mi-0045-CAP-CCH ) ) ) )

Certificate of Service I HEREBY CERTIFY that on June 28, 2010, I served the foregoing United States Motion and Supporting Memorandum of Law to Adjudicate Thomas J. Lawler in Civil Contempt by ECF Filing upon the following: John Tyler, Esq. Anthony J. Rollins, Esq. Wagner, Johnston & Rosenthal, P.C. 5855 Sandy Springs Circle, Suite 300 Atlanta, Georgia 30328-4834 Chalmer E Detling, Esq. Lyle Detling & Levine, LLC Suite 330, 127 Church Street Marietta , GA 30062 /s/ Darcy F. Coty DARCY F. COTY ASSISTANT U.S. ATTORNEY