EcoVest Urges Court to Allow Surreply in Easement Case

UNITED STATES,
Plaintiff,
v.
ECOVEST CAPITAL, INC., et al.,
Defendants.

IN THE UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION

THE ECOVEST PARTIES' REPLY IN SUPPORT OF THEIR MOTION FOR LEAVE TO FILE A SURREPLY

EcoVest Capital, Inc., Alan Solon, Ralph Teal, and Robert McCullough (collectively, “the EcoVest Parties”) respectfully submit this Reply in support of their Motion for Leave to File a Surreply (ECF No. 383). In this action, Plaintiff has labeled the EcoVest Parties as fraudulent actors for allegedly sponsoring defective real estate investment projects. And yet, through the IRS, Plaintiff has conceded that there are “no hazards of litigation” on “any legal issues” related to several of these projects. Plaintiff, in its opposition (ECF No. 387), not surprisingly urges this Court to ignore its own concessions. Two points merit response.

I. The IRS Appeals Process

Plaintiff mischaracterizes the IRS Appeals process. First, Plaintiff's argument that its concessions in the IRS Appeals process are not binding on it is a strawman, particularly for purposes of summary judgment. See Opp., ECF No. 387 at 3-5. As the EcoVest Parties wrote in their proposed Surreply, “Plaintiff's admissions demonstrate, at minimum, that there is a 'genuine dispute' (see FRCP 56(a)) that the appraisals are 'qualified appraisals.'” ECF No. 383-1 at 4. Plaintiff itself acknowledges that its statements could, at least potentially, be considered “rebuttable evidentiary admissions,” demonstrating that there is a dispute as to a central factual claim in Plaintiff's motion for summary judgment. See Opp. ECF No. 387 at 5. Whether or not the admissions are binding, they demonstrate summary judgment is inappropriate

Second, contrary to Plaintiff's assertions, IRS Appeals Officers do have authority to make binding concessions. See Opp., ECF No. 387 at 3-4. The IRS's own procedures make clear that IRS Appeals Officers have full authority over a matter — including authority to make concessions. See, e.g., Internal Revenue Manual (“IRM”) 1.2.1.9.6(4) (rev. April 6, 1987) (“Appeals is the only administrative function of the Service with authority to consider settlements of tax controversies”); IRM 8.6.3.3(2) (rev. Oct. 6, 2016) (even where “the Service position is adverse to the taxpayer, Appeals may partially or fully concede the issue based on the litigating hazards”); Rev. Proc. 2016-22, 2016-15 I.R.B. 577 (“When a docketed case is forwarded to Appeals for consideration, Appeals has the sole authority to resolve a docketed case through settlement”). In the Adkins case that Plaintiff cites, the IRS Office of Appeals had lost jurisdiction over the matter before the Appeals Officer drafted the memorandum with the settlement proposal at issue. Adkins v. United States, 154 Fed. Cl. 290, 295 (2021). But here, there is no indication that the Office of Appeals lacks settlement authority over the relevant parallel audits. The Office's concessions show summary judgment is inappropriate.

II. Federal Rule of Evidence 408

Plaintiff's assertions regarding Rule 408 are flawed. First, Plaintiff oversells its “same transaction” argument. See Opp., ECF No. 387 at 6-9. The “touchstone” for Rule 408 is not the “nature of the underlying transaction,” as Plaintiff argues. Id. at 8. Rule 408's “touchstone” is in the rule itself, in black and white: “Rule 408 unambiguously requires that the claim as to which the settlement offer was made and the claim at issue in the litigation in which the offer is proffered as evidence must be the same claim.” Sauer v. Publisher Services, Inc., 2016 WL 4409209101 at *6, n. 4, 101 Fed. R. Evid. Serv. 233 (N.D. Ga. Aug. 19, 2016) quoting Armstrong v. HRB Royalty, Inc., 392 F. Supp. 2d 1302, 1304-05 (S.D. Ala. 2005). In the very case Plaintiff relies on to introduce the “same transaction” concept, the court wrote,

[B]ecause the reach of the term “transaction” is much broader than that of the term “claim,” the indiscriminate use of “same transaction” in lieu of “same claim” will inevitably result in applications of Rule 408 beyond its proper confines.

Armstrong, 392 F. Supp. 2d at 1308. Here, Plaintiff does not dispute that the audits involve legal “claims” different from Plaintiff's legal “claims” in this case. E.g. Opp., ECF No. 387 at 7 (“[T]he audits . . . involve other theories and penalties. . . .”). Plaintiff argues instead that the audits are based on the same “transactions.” That is not the touchstone of Rule 408.

Second, Plaintiff does not dispute that the Court may consider otherwise excludable evidence to the extent it could show bad faith. See Opp., ECF No. 387 at 9-10; [Proposed] Surreply, ECF No. 383-1 at 5-6.Instead, Plaintiff argues the merits of the issue, asserting that it did not bring its motion for summary judgment in bad faith.Opp., ECF No. 387 at 9-10.In doing so, Plaintiff reiterates its on-again, off-again position that it “is not required to prove fraud to prevail” in this tax fraud case.Compare id. with, e.g., Pl.'s MSJ, ECF No. 349-1 at 30 (arguing “Defendants knew (or at least had reason to know) that their statements were false or fraudulent”).The Court should not find that Rule 408 bars consideration of Plaintiff's concessions where there is no dispute that the concessions are admissible for at least one purpose.

Dated: May 9, 2022

Respectfully submitted,

Benjamin J. Razi (admitted pro hac vice)
Sean Akins (admitted pro hac vice)
Marianna Jackson (admitted pro hac vice)
Matthew V. Miller (admitted pro hac vice)
Nicholas Pastan (admitted pro hac vice)
Kandyce Jayasinghe (admitted pro hac vice)
Amee Frodle (admitted pro hac vice)
Wesline N. Manuelpillai (admitted pro hac vice)
COVINGTON & BURLING LLP
850 Tenth St. NW
Washington, DC 20001
Tel.: (202) 662-6000
Fax: (202) 662-6291

Thomas T. Tate
Georgia Bar No. 698879
Elizabeth L. Clack-Freeman
Georgia Bar No. 126888
ANDERSEN, TATE, & CARR, P.C.
One Sugarloaf Centre
1960 Satellite Blvd., Suite 4000
Duluth, Georgia 30097
Tel: (770) 822-0900
Fax: (770) 822-9680
Email: ttate@atclawfirm.com

Attorneys for Defendants EcoVest Capital, Inc., Alan N. Solon, Robert M. McCullough, and Ralph R. Teal, Jr.

* I certify that this pleading has been prepared with one of the font and point selections approved by the Court in LR 5.1C.