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URBAN v. U.S.

January 11, 2005.

DAVID A. URBAN, Plaintiff and Counterclaim Defendant
v.
UNITED STATES OF AMERICA, Defendant, Counterclaimant, and Third-Party Plaintiff, SAMY HAMMAD, Additional Counterclaim Defendant and Third-Party Defendant.



The opinion of the court was delivered by: MARTIN ASHMAN, Magistrate Judge

MEMORANDUM OPINION AND ORDER

Plaintiff David A. Urban moves this Court, pursuant to Rule 15(a) of the Federal Rules of Civil Procedure, to grant him leave to amend his complaint against Defendant United States of America by adding a count for spoliation of evidence. Defendant opposes Plaintiff's motion and argues that the motion is (a) barred by the Federal Torts Claim Act (FTCA), 28 U.S.C. §§ 2671-2680, and (b) an evidentiary objection. This matter comes before this Court pursuant to 28 U.S.C. § 636(b)(1)(A) and Local Rule 72.1. For the following reasons that follow, Plaintiff's motion is denied. I. Background

Defendant's Internal Revenue Service ("IRS") found Plaintiff to be a willful and responsible officer of All American Corp. and imposed a trust fund recovery penalty against him, pursuant to 26 U.S.C. 6672, for the quarterly tax periods ending September 30, 1991, December 31, 1991, March 31, 1992, December 31, 1992, June 30, 1995, and September 30, 1995. On September 18, 2003, Plaintiff filed a complaint against Defendant seeking a refund of amounts paid to the IRS toward the trust fund recovery penalty. Among other things, the complaint alleges that Plaintiff never signed the "Waiver Extending Statutory Period for Assessment of 100 Percent Penalty" (Form 2750) ("Waiver") upon which the IRS relied in assessing Plaintiff with penalties in excess of $620,000 under 26 U.S.C. 6672 with respect to four calendar quarters in 1991 and 1992. It is Plaintiff's position that, without a valid Waiver, the IRS would have been unable to assess these penalties because the statute of limitations would have run.

  IRS Form 2750 is a multi-part carbonless form, consisting of at least two parts. The top page bears the notation "Part 1 — IRS Copy" and is the page that bears the original signatures ("Original Waiver"). The second page bears the notation "Part 2 — Copy for Person Potentially Liable." Plaintiff requested the Original Waiver so that his expert can examine the document and offer testimony as to the authenticity of the signatures contained therein. Defendant claims that it once possessed the Original Waiver but, despite an extensive search, Defendant has been unable to find it. Plaintiff possesses photocopies of Part 2 of the Waiver but claims the quality of the photocopies is very poor, such that neither Plaintiff's nor Defendant's expert can draw any conclusions regarding whether Plaintiff signed the Waiver. Plaintiff claims that he has never signed nor seen the Original Waiver. (Pl.'s Sur-Reply at 2.)

  On April 15, 2004, Defendant filed an Amended Answer and Counterclaim against Plaintiff, alleging that Plaintiff owes the United States in excess of one million dollars for trust fund penalty pertaining to unpaid payroll taxes owed by All American Corp.

  Discovery in this proceeding closed on September 30, 2004. On October 7, 2004, Plaintiff filed his motion for leave to amend his complaint on October 7, 2004. As of today, Defendant has yet to produce the Original Waiver.

  II. Discussion

  Plaintiff moves this Court, pursuant to Rule 15(a) of the Federal Rules of Civil Procedure, to grant him leave to amend his complaint. Rule 15(a) requires that where, as here, an answer to the complaint has been filed, Plaintiff may amend his complaint only by leave of the Court or consent of Defendant. Fed.R. Civ. P. 15(a). The Court is instructed to freely grant leave to amend a complaint where justice so requires. Id.; Dubicz v. Commonwealth Edison Co., 377 F.3d 787, 792 (7th Cir. 2004). "The liberal policy of allowing amendments to be freely made is based in part on the belief that decisions on the merits should be made whenever possible, absent countervailing considerations." Jack-Goods v. State Farm Mut. Auto. Ins. Co., No. 01 C 6536, 2003 WL 21788986, at *2 (N.D.Ill. July 30, 2003) (internal citations omitted). A trial court may deny a motion to amend where there is undue delay, bad faith, dilatory motive by the plaintiff, prejudice to the opposing party, or the amendment is futile. Dubicz, 377 F.3d at 792; Park v. City of Chicago, 297 F.3d 606, 612-13 (7th Cir. 2002). A party may be permitted to amend its complaint to assert new claims found only after the close of discovery, so long as the new matters are promptly raised. Venters v. City of Delphi, 123 F.3d 956, 967-68 (7th Cir. 1997); Johnson v. Ford Motor Co., Inc., No. 01 C 8882, 2004 WL 407022, at *4 (N.D.Ill. Jan. 30, 2004). Ultimately, whether an amendment should be granted is left to the sound discretion of the trial court. Foman v. Davis, 371 U.S. 178, 182 (1962); J.D. Marshall Int'l, Inc. v. Redstart, Inc., 935 F.2d 815, 819 (7th Cir. 1991).

  Plaintiff seeks to add a count for spoliation of evidence against Defendant. The spoliation of evidence claim affords redress for the destruction of evidence and is intended to prevent the loss of evidence relevant to a litigant's claim. Boyd v. Travelers Ins. Co., 652 N.E.2d 267, 270 (Ill. 1995). In Illinois, an action for negligent spoliation of evidence can be stated under existing negligence law. Id. See also Johnson, 2004 WL 407022, at *2-3. A cause of action for negligence requires the existence of a duty owed by Defendant to Plaintiff, a breach of that duty, an injury proximately caused by the breach, and damages. Boyd, 652 N.E.2d at 270. Where Plaintiff's damages will not actually occur until after he loses in court, Plaintiff may nonetheless bring his spoliation of evidence claim concurrently with the underlying suit on which it is based. Id. at 272.

  Plaintiff claims that: (1) Defendant had a duty to preserve the Original Waiver, (if it ever existed), (2) Defendant breached its duty by misplacing the Original Waiver, (3) the absence of the Original Waiver makes it more difficult for Plaintiff to obtain a set-off or refund of its IRS penalties, and (4) Plaintiff is monetarily damaged when he cannot obtain his set-off or refund. Defendant raises a FTCA defense and challenges Plaintiff's ability to bring a tort claim against the United States. (Pl.'s Reply at 8-9.) A. The FTCA Does Not Bar Plaintiff's Spoliation of Evidence Claim.

  In order for this Court to assert jurisdiction over Defendant United States, the United States must waive its sovereign immunity. Clark v. United States, 326 F.3d 911, 912-13 (7th Cir. 2003). The FTCA represents a statutory waiver of sovereign immunity. Id. It permits an individual to bring suit in federal court against the United States for the recovery of any internal-revenue tax or penalty alleged to have been erroneously or illegally assessed or collected, 28 U.S.C. § 1346(a)(1), as well as for "injury or loss of property or personal injury or death caused by the negligent or wrongful act or omission of any employee of the Government while acting within the scope of his office or employment. . . ." 28 U.S.C. § 2675(a). Before Plaintiff may bring his tort claim against the United States Government in federal court, the FTCA requires that Plaintiff file an administrative tort claim with the appropriate federal agency. Id.; McNeil v. United States, 508 U.S. 106 (1993); Palay v. United States, 349 F.3d 418, 425 (7th Cir. 2003). Only after the appropriate federal agency rejects Plaintiff's claim has Plaintiff exhausted potential administrative remedies, at which point Plaintiff may proceed against the United States in federal court. 28 U.S.C. § 2675(a); Palay, 349 F.3d at 425. Where Plaintiff's claims against the United States are compulsory counterclaims, however, the administrative exhaustion requirement does not apply. 28 U.S.C. § 2675(a); Northbridge Bank v. Cmty. Eye Care Ctr., Inc., 655 F.2d 832, 836 (7th Cir. 1981); Fed. Sav. & Loan Ins. Corp. v. Quinn, 419 F.2d 1014, 1017 (7th Cir. 1969). This makes sense, as compulsory counterclaims do not require an independent grant of jurisdiction. Leipzig v. AIG Life Ins. Co., 362 F.3d 406, 410 (7th Cir. 2004). Rule 13(a) of the Federal Rules of Civil Procedure defines compulsory counterclaims as a claim that, "arises out of the transaction or occurrence that is the subject matter of the opposing party's claim. . . ." Fed.R.Civ.P. 13(a). In the Seventh Circuit, a "logical relationship" test is applied to determine whether a counterclaim arises from the same transaction or occurrence. Price v. United States, 42 F.3d 1068, 1073 (7th Cir. 1994). Under the "logical relationship" test, "transaction" and "occurrence" may incorporate a whole series of logically related occurrences, as the words "transaction" and "occurrence" are flexible in meaning and are interpreted liberally in order to carry out the philosophy of Rule 13(a). Id. "The purpose behind [Rule 13(a)] is judicial economy; to avoid a multiplicity of actions by resolving in a single lawsuit all disputes that ensue from a common factual background." Id. To determine if disputes ensue from a common factual background, the Court takes a flexible approach and considers the totality of the claims, including the nature of the claims, the law involved, the legal basis for recovery, and the respective factual backgrounds. Id.; Burlington N.R.R. v. Strong, 907 F.2d 707, 711-12 (7th Cir. 1990).

  In this case, the Court treats Plaintiff's spoliation of evidence claim as a compulsory counterclaim. The Court rejects Defendant's argument that Plaintiff's refund action and Plaintiff's tort claim are completely separate issues. Plaintiff claims that he never saw or signed the Original Waiver. (Pl.'s Sur-Reply at 2.) Defendant claims that Plaintiff signed the Original Waiver and relies on the existence of the Original Waiver to impose several penalties on Plaintiff that might otherwise be barred by statute of limitations. (Def.'s Resp. at 2, 4-5.) The text and signatures that appear on the Original Waiver are central to this case. Accordingly, the existence of the Original Waiver, Plaintiff's right to examine the Original Waiver, and any wrongdoing or negligence that made this piece of evidence unavailable, are logically related and share a common factual background. See Price, 42 F.3d at 1073. Thus, the Court finds that it has jurisdiction over Plaintiff's spoliation of evidence claim and that the FTCA does not bar the claim.

  Treating Plaintiff's spoliation of evidence claim as a compulsory counterclaim is also the equitable manner in which to proceed. At oral argument, Defendant argued that Plaintiff may not bring a tort claim until his administrative remedies are exhausted. When asked if Defendant would stipulate to Plaintiff's right to bring his tort claim in the event that Plaintiff loses in the case at bar and then exhausts his administrative remedies, Defendant refused. Instead, Defendant reserved the right to raise res judicata arguments if Plaintiff brings his tort claim after the resolution of this case. Thus, today Defendant argues that Plaintiff's tort claim is premature and tomorrow Defendant intends to argue that Plaintiff's tort claim is too late. In a case like this one, where the claims arise out of the same issues and Plaintiff's only clear opportunity to raise his tort claim is in response to Defendant's counterclaim, whether Plaintiff's action is technically an additional count or technically a counterclaim, the result is the same. By bringing its claims against Plaintiff, Defendant has waived its sovereign immunity with regard to the spoliation of evidence claim.

  Defendant argues that 28 U.S.C. § 2401(b) also bars Plaintiff's tort claim. 28 U.S.C. ...


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