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United States v. Dunn

April 12, 2007


The opinion of the court was delivered by: Magistrate Judge P. Michael Mahoney


On January 31, 2007, Plaintiff filed its Motion for an Order to Preclude Evidence Regarding a New Defense Theory and the Testimony of Certain Witnesses, which is the subject of this order. For the following reasons, Plaintiff's Motion is granted in part.

I. Introduction

This case concerns the government's effort to obtain a judgment under 26 U.S.C. § 6672 against the Estate of Harry J. Vernetti for his failure to collect, account for and pay over to the IRS, income and FICA contributions due from employees of Vernetti's Mid-State's Construction Systems Corporation. In addition to seeking to preclude the defense from using any evidence of Harry Vernetti's purported cognitive problems, Plaintiff's motion originally sought to bar the testimony of Defendants, Linda Dunn and Diane Callahan. Plaintiff has since withdrawn the portion of its Motion which sought to bar Dunn and Callahan's testimony. See Plaintiff's Reply, § III. The following outline of events is provided to place the remaining dispute in context.

II. Background

September 24, 2004, Plaintiff brought this case in the United States District Court, Middle District of Florida, due to the fact that Harry Vernetti's will was being probated in that state. On November 29, 2004, Defendants filed an answer which failed to raise Harry Vernetti's cognitive problems as an affirmative defense. On December 1, 2004, venue of the case was transferred to the Northern District of Illinois, Western Division.

On March 18, 2005, Defendants made their initial disclosures pursuant to Fed.R.Civ.P. 26(a)(1). Nothing in these disclosures addressed Harry Vernetti's cognitive problems. On March 22, 2005, the parties submitted their Joint Status Report. The Joint Status Report characterized the principal factual issues in the case as Harry Vernetti's knowledge about the unpaid taxes, the actions he took, and the relationship he held with the corporation. Nothing in the Joint Status Report concerned the cognitive problems of Harry Vernetti.

On June 10, 2005, the Plaintiff served written discovery requests upon the Defendants, consisting of requests to admit, interrogatories and document requests. None of Defendants' responses addressed Harry Vernetti's cognitive problems. Defendants preferred instead to support their claim that Harry was not responsible for the underlying offense by pointing out that he had sold his business to his son, Phillip Vernetti, and had retired to Florida by the time the alleged violations took place.

However, during the deposition of Phillip Vernetti (Harry's son) on February 21, 2006, Harry Vernetti's cognitive problems were brought up. During his deposition, Phillip stated that his father Harry "wasn't always coherent" during the last two to four years of his life, and that Phillip was "concerned about dementia," which he discussed with his sisters, Linda Dunn and Diane Callahan. Exhibit A to Defendants' Response at 195, 209. Phillip's brief mention of Harry's possible dementia was the first time the issue had been brought to the attention of the Plaintiff.

Harry Vernetti's cognitive problems were again brought up, this time by Defendants in the context of settlement negotiations. A letter from Defense counsel to Plaintiff's counsel dated October 3, 2006, states: there is another potentially significant defense of which we have just become aware and intend to further investigate and pursue which can be summarized as follows: Harry Vernetti was diagnosed with a brain tumor in September, 2003; he passed away in December, 2003. We have been informed by several persons, including Harry's prior counsel . . . who will attest that Harry may have had cognitive problems long prior to September, 2003. In fact, in early 2002 (prior to Harry's knowledge of liability), his daughter contacted Harry's physician to inform him of her concerns about Harry's mental and physical well-being. These facts would surely serve to explain Harry's inability and resulting failure to promptly respond upon being informed of the potential liability for unpaid employment taxes.

Exhibit 4 to Plaintiff's Reply. No individuals are identified in this part of the letter, nor are their telephone numbers and addresses disclosed as required under Rule 26(a). Then on October 20, 2006, Defendants motioned for and the court granted an extension of the fact discovery cut-off date from October 31, 2006, to December 29, 2006, due to ongoing settlement discussions. However, the defense did not raise their investigation of Mr. Vernetti's alleged cognitive problems in justification of the desired extension of fact discovery.

In light of Phillip Vernetti's deposition testimony from February 21, 2006, and the settlement letter from October 3, 2006, it is clear that the Defendants possessed some knowledge of Harry's cognitive problems in advance of the fact discovery cut-off date of December 29, 2006. Yet Defendants did not supplement their 26(a)(1) disclosures until the very last day of fact discovery. The supplemental disclosure provided on December 29, 2006, identified for the first time witnesses expected to provide testimony concerning Harry's cognitive problems. Witnesses such as Michael Dunn (Linda Dunn's husband), Carol Shumaker and Thomas Laughlin had not been identified by the Defendants prior to this point. Defendants' supplemental disclosure also identified two doctors, Richard Nora and Bernard O'Malley, who treated Harry Vernetti. These doctors were identified as both expert and fact witnesses.

III. Discussion

A. Whether Defendants Must Have Pled Mr. ...

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