Opinion
20894-19 6791-20 10830-20 17749-21 17771-21
09-12-2023
NOEL M. PARDUCCI & KENNETH L. PARDUCCI, ET AL.,[1] Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
RONALD L. BUCH JUDGE
Currently pending before the Court are the Commissioner's and Mr. Simpson's Motions for Order to Show Cause Why Proposed Facts and Evidence Should Not be Accepted as Established Pursuant to Rule 91(f), all filed June 16, 2023, and the Court's Order to Show Cause, served June 26, 2023. For the reasons stated below, we will deem the Commissioner's proposed stipulations attached to his 91(f) motions admitted in part and denied in part, as set forth in the appendix to this Order, and Mr. Simpson's proposed stipulations provided in his 91(f) motions denied in full.
Unless otherwise indicated, all statutory references are to the Internal Revenue Code, Title 26 U.S.C., in effect at all relevant times and all Rule references are to the Tax Court Rules of Practice and Procedure.
Background
On June 16, 2023, the Commissioner filed five Motions for Order to Show Cause:
• Commissioner's Motion for Order to Show Cause Why Proposed Facts and Evidence Contained in First Stipulation of Facts - Business History and Organization Should Not be Accepted as Established Pursuant to Rule 91(f);
• Commissioner's Motion for Order to Show Cause Why Proposed Facts
and Evidence Contained in Second Stipulation of Facts - Management and Profits Should Not be Accepted as Established Pursuant to Rule 91(f);
• Commissioner's Motion for Order to Show Cause Why Proposed Facts and Evidence Contained in Third Stipulation of Facts - Mailers Should Not be Accepted as Established Pursuant to Rule 91(f);
• Commissioner's Motion for Order to Show Cause Why Proposed Facts and Evidence Contained in Fourth Stipulation of Facts - Support Functions Should Not be Accepted as Established Pursuant to Rule 91(f); and
• Commissioner's Motion for Order to Show Cause Why Proposed Facts and Evidence Contained in Fifth Stipulation of Facts - Challenges Should Not be Accepted as Established Pursuant to Rule 91(f).A proposed stipulation was attached to each of the Commissioner's motions. Each stipulation contained paragraphs that stated facts related to the subject matter of the motions. Support for these facts primarily stemmed from the Findings of Fact contained in Fed. Trade Comm'n v. Adept Mgmt., Inc., et al., 2019 WL 1746581 (D. Or. Apr. 18, 2019), aff'd in part, vacated in part, Fed. Trade Comm'n v. Hoyal & Assocs., Inc., et. al., 859 Fed.Appx. 117 (9th Cir. 2021) (hereinafter, FTC Case), transcripts of individuals taken for purposes of the FTC Case, trial exhibits from the FTC case, and Mr. Simpson's informal discovery response.
Also, on June 16, 2023, Mr. Simpson filed his own Rule 91(f) Motions:
• A Motion for Order to Show Cause Why Proposed Facts and Evidence Should Not be Accepted as Established Pursuant to Rule 91(f) from Respondent; and
• A Motion for Order to Show Cause Why Proposed Facts and Evidence Should Not be Accepted as Established Pursuant to Rule 91(f) from Petitioner Hoyal.These motions contained proposed stipulations of facts and the Commissioner and the Hoyals responses to the stipulations.
On June 26, 2023, we granted the Commissioner's motions and ordered each petitioner to file a response to each motion. In their response, the petitioners were required to show why the facts and evidence set forth in the proposed stipulations attached to the Commissioner's motions should not be deemed admitted for purposes of this case. The Hoyals and Mr. Simpson filed responses. The Parduccis did not. The Court did not order responses to Mr. Simpson's Rule 91(f) motions.
For purposes of this Order, all references to the Hoyals are meant to include Crater Lake Trust. Furthermore, although Mr. Simpson does not explicitly state that his Rule 91(f) motions and responses to the Commissioner's Rule 91(f) motions are also made on behalf of Scenic Trust, because he is its trustee, all references to him are meant to include Scenic Trust.
The Hoyals responded to the Commissioner's motions, providing general objections in addition to listing the paragraphs they disputed in whole or in part. For the general objections they argued that: (1) the Commissioner failed to follow the normal stipulation process that has been used in hundreds of other Tax Court cases; (2) the Commissioner does not qualify for Rule 91(f) relief because he failed to satisfy its necessary preconditions; and (3) the cited sources are not sufficient to support most of the facts that the Commissioner claims should be deemed admitted.
Mr. Simpson responded to the Commissioner's motions, objecting to most of the paragraphs. Mr. Simpson's general reasons for objecting to the paragraphs were because he was not familiar with the facts stated in the paragraph, he did not agree with the Commissioner's interpretation of the facts stated in the paragraph, or he did not see the relevance of the facts stated in the paragraph.
Discussion
The sole issue we must determine is whether the proposed stipulations should be deemed admitted. To decide this, we must review the proposed stipulation in each Rule 91(f) motion and the parties' responses to them. For each proposed stipulation, we will deem admitted: (1) the paragraphs agreed to by all relevant parties; and (2) the paragraphs agreed to by some of the relevant parties when the objecting party fails to put forth a sufficient objection. The paragraphs for which a sufficient objection is offered will be deemed denied.
All relevant parties include the Commissioner, the Hoyals, and Mr. Simpson. The Parduccis did not respond to the Commissioner's Rule 91(f) motions and Mr. Simpson did not provide a Rule 91(f) motion to the Parduccis.
"The stipulation process is considered 'the bedrock of Tax Court practice' and acts 'as an aid to the more expeditious trial of cases.'" Washburn v. Commissioner, T.C. Memo. 2018-110, at *13-14 (citing Branerton Corp. v. Commissioner, 61 T.C. 691, 692 (1974)). Essentially, it narrows controversies to the essential issues in dispute. Washburn, T.C. Memo. 2018-110, at *14. Rule 91(a)(1) requires that parties stipulate to the fullest extent possible all matters relevant to the pending case, including "all facts, all documents and papers or contents or aspects thereof, and all evidence that fairly should not be in dispute." Once a stipulation is made, it is generally binding on all parties in the pending case. Rule 91(e). However, if a party refuses to engage in the stipulation process, Rule 91(f) provides a means to compel stipulation. Specifically, it provides that:
[i]f, after the date the notice setting the case for trial is served, a party has refused or failed to confer with an opposing party with respect to entering into a stipulation in accordance with this Rule, or a party has
refused or failed to stipulate to any matter within the terms of this Rule, the party proposing to stipulate may . . . file a motion with the Court for an order directing the delinquent party to show cause why the matters covered in the motion should not be deemed admitted for the purpose of the case.Rule 91(f)(1). If a party is seeking to compel a stipulation, the party must generally identify each matter that is claimed for stipulation with particularity and provide the sources to support each matter. Id. Both the Commissioner and Mr. Simpson sought to compel stipulations. We will address each party's Rule 91(f) motions separately below.
I. The Commissioner's Rule 91(f) Motions
The Commissioner filed five Rule 91(f) motions in which he asked the Court to grant an order to show cause why the matters covered in the motions should not be deemed admitted. We granted the motions and ordered responses from each petitioner. The Hoyals and Mr. Simpson responded, disputing most of the paragraphs. Because many of the paragraphs disputed by the Hoyals and Mr. Simpson are not established by the sources cited by the Commissioner, we will not deem those paragraphs admitted. However, the paragraphs objected to because a party was not familiar with the statement provided, but agreed to by the other parties, are deemed admitted. Additionally, the paragraphs agreed to by all parties are deemed admitted.
We will deem admitted the paragraphs agreed to by all relevant parties. In the Commissioner's Rule 91(f) motions, all parties who responded agreed to several paragraphs. Some of the responding parties objected on the grounds of relevance. But relevance is not a valid reason to refuse to stipulate. See Rule 91(a)(1) ("[i]f the truth or authenticity of facts or evidence claimed to be relevant by one party is not disputed, an objection on the ground of materiality or relevance may be noted by any other party but is not to be regarded as just cause for refusal to stipulate."). Therefore, we will deem the parties to have admitted the paragraphs that they all agreed to, without regard to any relevance objections.
Further, we will deem admitted the paragraphs that are agreed by some parties but where other parties object because they lack knowledge of the particular facts stated in the paragraph. The Hoyals agreed to many of the paragraphs in the Commissioner's Rule 91(f) motions, but Mr. Simpson objected to several statements, stating "UNKNOWN TO PETITIONER SIMPSON." Mr. Simpson does not dispute these statements and offers no basis upon which to dispute them. See Rule 91(f)(2). Mr. Simpson's bare denials are not sufficient to dispute the facts that are otherwise supported. Therefore, the parties are deemed to have admitted to these paragraphs too. For clarity and the convenience of the parties, the Court will attach to this Order a list of all the paragraphs that we deemed admitted.
As to all other paragraphs that we do not deem admitted, the sources cited to do not provide enough support to establish the facts. The Commissioner cites the Findings of Fact in an FTC case as the primary source for most of the paragraphs contained in each Rule 91(f) Motion's proposed stipulation. But a fact having been found in one proceeding does not mean that the parties are automatically bound by that fact in another proceeding. See Estate of Reis v. Commissioner, 87 T.C. 1016, 1028-29 (1986) ("[t]he mere fact that a court in one opinion makes findings of fact is not a basis for the same or another court in another proceeding to . . . deem them to be indisputably established for purposes of the pending litigation."). Therefore, the parties are not bound by these facts and are free to dispute the facts in the paragraphs that rely on the FTC Findings of Fact. In addition to the Findings of Fact in the FTC case, the Commissioner cites to Mr. Simpson's informal discovery response, transcripts of individuals taken for purposes of the FTC case, and trial exhibits from the FTC case as support for his proposed stipulations. [id., same record cites] However, because the Court was not provided with copies of these sources with these motions, we cannot ascertain the accuracy of these statements. Therefore, the parties are not bound by these facts and are free to dispute the proposed stipulations that rely on these sources. Because the Hoyals and Mr. Simpson dispute the facts contained in these paragraphs, and the sources cited do not indisputably establish these facts, the parties are not deemed to have admitted these paragraphs.
II. Mr. Simpson's Rule 91(f) Motions
Mr. Simpson filed two motions asking the Court to grant an order to show cause why the matters covered in his motions should not be deemed admitted. He made separate motions with respect to the Hoyals and the Commissioner. But Mr. Simpson's Rule 91(f) motions contain different variations of similar facts. For example, paragraph 5 of Mr. Simpson's proposed stipulation provided to the Hoyals states "[i]n approximately April 2004, Jeff Hoyal, Dennis Simpson, and John Ackerman agreed to form a partnership called Mail Industries and split the proceeds 3 ways." And the proposed stipulation provided to the Commissioner states "[i]n approximately Nov 2004, Jeff Hoyal, Dennis Simpson, and John Ackerman, agreed not to take any proceeds from Mail Industries in tax year 2004." Because these are consolidated cases, every party has to agree to the same set of facts for us to deem a fact admitted. Mr. Simpson's proposed stipulations contained in his Rule 91(f) motions fail to provide the parties with the same set of facts, therefore we cannot deem any of the facts admitted. Furthermore, many of Mr. Simpson's paragraphs simply restate the contents of documents, and the stipulation process is not to be used to stipulate to contents contained in documents. Documents speak for themselves. Therefore, we will deny both of Mr. Simpson's Rule 91(f) Motions for order to show cause and not deem admitted any of the paragraphs contained in them.
III. Conclusion
The Commissioner's proposed stipulations are deemed admitted in part and denied in part. Mr. Simpson's proposed stipulations are denied in full.
Accordingly, it is
ORDERED that the Court's Order to Show Cause served June 26, 2023, is discharged. It is further
ORDERED that, for the reasons set forth above, the statements set forth in the appendix to this Order are deemed admitted by all parties. It is further
ORDERED that Mr. Simpson's Motion for Order to Show Cause Why Proposed Facts and Evidence Should Not be Accepted as Established Pursuant to Rule 91(f) from Respondent is denied. It is further
ORDERED that Mr. Simpson's Motion for Order to Show Cause Why Proposed Facts and Evidence Should Not be Accepted as Established Pursuant to Rule 91(f) from Petitioner Hoyal is denied.
APPENDIX TO ORDER SERVED SEPTEMBER 12, 2023
FIRST STIPULATION OF FACTS - BUSINESS HISTORY AND ORGANIZATION
1. Dennis Simpson began working in the subscription sales industry in the mid-1990s, using the entity known as Publishers Marketplace of America ("Publishers Marketplace").
2. Mr. Simpson owned Publishers Marketplace as a sole proprietorship and then as a Subchapter S corporation beginning in 1996.
3. Publishers Marketplace operated as a subscription sales company, and provided customer service, data management, and direct mail marketing.
6. IC Marketing engaged in direct mail marketing of subscription offers.
9. For IC Marketing, Mr. Simpson worked with, or interacted with, the United States Postal Service, print shops, mail houses, envelope manufacturers, publishers, data list brokers. He also traded data with other magazine sales agents.
14. Public documents related to Raybor, including its state registration data from 2016, its Form 10-K filed June 29, 2004, and Form 8-K dated June 1, 2005, are attached hereto as Exhibit 1-J (FTC Litigation Exhibit 75).
32. Henry Cricket was owned by Revista Group Business Trust.
33. Henry Cricket Group owned the following entities: Anchor Publishing Group, Inc. ("Anchor"), Orbital Publishing Group, Inc. ("Orbital"), Liberty Publishers Service, Inc. ("Liberty"), Express Publishers Service, Inc., ("Express"), and United Publishers Exchange, Inc. ("United").
34. Entities held by Henry Cricket, such as Orbital and Liberty, in addition to the entity known as Associated Publishers, Inc., were the mailing agents that actually mailed solicitations, known as mailers, to customers.
35. Orbital, followed by Liberty, used multiple business names or dbas, including Allied Publishing Services, American Consumer Publishers Association, Associated Publishers Services, Billing Services of America, Bradford Publishing Service, Circulation Billing Services, Global Publishers Center, Lake Shore Publishers Service, Magazine Billing Services, Magazine Distribution Service, Magazine Payment Services, Magazine Subscriber Services, Magazine Subscriptions Center, National Magazine Services, Periodical Billing Services, Platinum Subscription Service, Publication Service Networks, Publishers Access Services, Publishers Billing Exchange, Publishers Consolidated Subscription Services, Publishers Distribution Center, Publishers Education Services, Publishers Magazine Billing, Publishers Magazine Payment, Publishers Marketplace Services, Publishers Network Exchange, Publishers Payment Services, Publishers Periodical Service, Publishers Processing Service, Publishers Services Exchange, Readers Billing Services, Readers Payment Service, Seascape Publishers Network, Slo Call Center, Subscription Billing Service, Subscription Payment Exchange, Subscription Payment Services, United Publishers Services.
36. Liberty, a New York Corporation, was formed in 2011 and was used to send subscription mailers to customers. The Certificate of Incorporation for Liberty, with related corporate records, is attached as Exhibit 4-J (FTC Litigation Exhibit 125).
37. United Publisher's Exchange, Inc., a Nevada corporation, was formed in 2012 and used to send subscription mailers to customers. An extract of Nevada Secretary of State records related to United Publisher's Exchange is attached as Exhibit 5-J (FTC Litigation Exhibit 153).
38. United Publisher's Exchange, Inc., used multiple business names, including Associated Publishers Network, Premier Subscription Network, Publishers Magazine Exchange, Publishers Billing Network, Magazine Billing Associates, and Circulation Billing Network. A copy of records produced by United Parcel Service ("UPS") Store # 0320 is attached as Exhibit 6-J (FTC Litigation Exhibit 1029).
39. The mail and payment processing entities included Orbital, Liberty, Express, United, Associated, Atlas Business Consulting LLC ("Atlas"), North West Data Services LLC ("North West Data"), Adept Management, Inc. ("Adept"), and Crown Resource Management Services, LLC ("Crown").
40. Ms. Bacon and Ms. Kaylor, acting through Publishers Payment Processing, Inc. (a New York corporation) ("PPP NY") and PPP Magazines, Inc. ("PPP Magazines") operated a call center that processed telephone and internet orders and payments made by consumers in response to the mailers.
41. Ms. Bacon, Ms. Kaylor, and Mr. Strickler, acting through Consolidated Publishers Exchange, Inc. ("CPE"), Customer Access Services, Inc. ("CAS"), Magazine Clearing Exchange, Inc. ("MCE"), Subscription House Agency, Inc. ("SHA"), and Wineoceros Wine Club, Inc. ("Wineoceros"), submitted subscription orders to publishers, a process known as "clearing."
SECOND STIPULATION OF FACTS - MANAGEMENT AND PROFITS
29. Maximillian, Inc. was an Oregon corporation, and filed its initial corporate paperwork with the Oregon Secretary of State on November 21, 2005. Noel Parducci was President of Maximillian, Inc. A copy of Maximillian's Articles of Incorporation, and additional state-filed paperwork through 2012, is attached as Exhibit 21-J (FTC Litigation Exhibit 218).
31. Ms. Parducci opened and managed bank accounts for Maximillian and other entities.
40. Ms. Pugsley reported switches on the weekly remit reports that she sent to Mr. Simpson, Mr. Hoyal, Ms. Parducci, and Ms. Lovrien and provided additional detailed information on the switch operations by email. Sample reports are attached as Exhibit 32-J (FTC Litigation Exhibit 279); and Exhibit 33-J (FTC Litigation Exhibit 356).
44. Ms. Pugsley reported all financial information regarding the subscription operation to Ms. Parducci, including all funds received from consumers for subscription orders.
THIRD STIPULATION OF FACTS - MAILERS
2. Mr. Simpson began sending subscription mailers in the early-mid 1990s, using the entity known as Publishers Marketplace.
3. Mr. Simpson developed the mailers he used for Publishers Marketplace.
16. Between 2010 and 2015, the form of the mailer did not change substantially.
FOURTH STIPULATION OF FACTS - SUPPORT FUNCTIONS
8. Mr. Hoyal reviewed changes to the call center handbook.
9. Mr. Hoyal oversaw Ms. Bacon's management of the center.
10. Calls placed to the number printed on the mailers, 707-266-6673, were answered at the call center.
24. Consolidated Publishers Exchange, Inc. ("CPE") was an Oregon corporation, incorporated on August 16, 2011, with a registered address at Ms. Bacon's residence. A corporate record for CPE is attached as Exhibit 42-J. (FTC Litigation Exhibit 506)
25. CPE was an "affiliated" or "in-house" clearing entity within the subscription operation.
26. Customer Access Services, Inc. ("CAS") was an Oregon corporation, formed on August 12, 2012, with a registered address at Ms. Kaylor's residence. Ms. Kaylor was the President, Secretary, and Registered Agent of CAS. A corporate record for CAS is attached as Exhibit 43-J. (FTC Litigation Exhibit 419).
27. CAS was formed to take over submitting operations from CPE.
28. Magazine Clearing Exchange, Inc. ("MCE") was an Oregon corporation, formed on September 23, 2013, with a registered address at Ms. Kaylor's residence. Ms. Kaylor was President, Secretary, and Registered Agent of MCE. A corporate record for MCE is attached as Exhibit 44-J. (FTC Litigation Exhibit 468).
29. MCE was formed to take over third-party clearinghouse relationships maintained by Bacon's companies, and submitted consumer orders to publishers
30. Magazine Link, Inc. ("Magazine Link") was an Oregon corporation, formed on September 23, 2013, with a registered address at Ms. Kaylor's residence. A corporate record for Magazine Link is attached as Exhibit 45-J. (FTC Litigation Exhibit 472).
31. Subscription House Agency, Inc. ("SHA") was an Oregon corporation, formed on August 15, 2012, with a registered address at Ms. Bacon's residential address. Ms. Bacon was manager, President, and Registered Agent of SHA. A corporate record for SHA is attached as Exhibit 46-J. (FTC Litigation Exhibit 1023).
32. Magazine Link and SHA operated from the White City Building, in the same room as CPE and Clarity Group.
33. Wineoceros Wine Club, Inc. ("Wineoceros") was an Oregon corporation, formed on October 11, 2011.
34. William Strickler was the President, Secretary, and Registered Agent of Wineoceros, and the company's registered address was Mr. Strickler's residence.
35. Ms. Bacon, through Clarity Group, Inc. ("Clarity Group") and Specialties, Inc. ("Specialties"), provided administrative support to the entities that submitted orders to publishers and received payment for submitting orders to publishers.
36. Ms. Pugsley and Ms. Babb, acting through Anchor Publishing Group, Inc. ("Anchor"), sent orders to, and paid, the submitting entities.
FIFTH STIPULATION OF FACTS - CHALLENGES
2. On July 16, 1996, the United States Postal Service issued a cease and desist order to Mr. Simpson and Publishers Marketplace to prohibit them from acting in a deceptive manner. A copy of the cease and desist order is attached as Exhibit 47-R (FTC Litigation Exhibit 2003).
3. In 1998, the McGraw-Hill Companies sued Dennis Simpson and other persons and entities to demand that the subscription mailing operation cease sending renewal notices to consumers, which the company characterized as fraudulent.
4. The McGraw-Hill litigation was resolved by a Stipulation and Order Granting Permanent Injunction against Mr. Simpson and IC Marketing, among others, to enjoin the defendants from soliciting business related to Business Week (a McGraw-Hill Publication) and from clearing or attempting to clear subscription orders for any McGraw-Hill publication. A copy of the Stipulation and Order is attached as Exhibit 48-R (FTC Litigation Exhibit 552).
5. In 2001, Amos Press, the publisher of Coin World, published a fraud alert against IC Marketing.
6. In response to the fraud alert, IC Marketing sued Amos Press for defamation, and Amos Press counterclaimed seeking an injunction for soliciting and sending mailers for its publications.
7. Amos Press prevailed in the litigation against IC Marketing on the basis that IC Marketing did not have authority to mail for Amos Press Publications.
8. In the year 2001, Mr. Simpson and IC Marketing, dba Publishers Service Exchange, were sued by the State of Oregon (Case No. 01C-17647, Marion County, Oregon) in connection with their subscription solicitation operations.
9. Without admitting fault by defendants, the State of Oregon and IC Marketing, by its president Dennis Simpson, entered into a stipulated judgment. The 2004 Consent Judgment required, among other provisions, that future mailers contain the language INDEPENDENT AGENT NOT A BILL KEEP THIS PORTION FOR RECEIPT OF OFFER in at least 7-point font on the front of the mailer. A copy of the consent judgment is attached as Exhibit 49-R (FTC Litigation Exhibit 555).
11. In the year 2003, Taunton Press and Outdoor Empire both published subscription alerts about IC Marketing.
12. IC Marketing and ACPA sued Taunton Press and Outdoor Empire, in response to which Taunton Press and Outdoor Empire countersued and sought injunctive relief.
13. Taunton Press and Outdoor Empire obtained an order to prohibit IC Marketing and ACPA from soliciting for Taunton Press and Outdoor Empire.
14. In 2006, Crain Communications, Inc., sued Mr. Simpson, Mr. Hoyal, and multiple persons and entities involved in the subscription mailing business, to enjoin them from sending mailers to seek or solicit sales of any publication of Crain. A copy of an Amended Complaint filed by Crain in the case at Crain Communications, et. al., v. Magazine Billing Services, Inc, et al, Case No. 2:06-cv- 12335 (E.D. Mich), is attached as Exhibit 50-R (FTC Litigation Exhibit 556).
19. The subscription business received consumer complaints when the consumer had not received the subscription he or she ordered.
26. Mr. Hoyal was aware that the subscription business received "a fair amount" of consumer complaints forwarded through state attorneys general.
27. Mr. Hoyal was aware that Ms. Lovrien received and responded to consumer complaints forwarded through state attorneys general and the Better Business Bureau.
39. Mr. Hoyal was aware that regional newspapers as well as the Wall Street Journal and the New York Times sent cease and desist letters to the subscription business. Samples of cease and desist letters are attached as Exhibit 55-R (FTC Litigation Exhibit 150) and Exhibit 56-R. FTC Litigation Exhibit 529).
41. Mr. Simpson was aware that the subscription business was receiving cease and desist letters from a variety of publishers, including the New York Times and the Wall Street Journal.