United States of America v. Schwarzbaum

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA

Case No. 18-cv-81147-BLOOM/Reinhart

UNITED STATES OF AMERICA,

Plaintiff,

v.

ISAC SCHWARZBAUM,

Defendant.
______________________________/

ORDER

THIS CAUSE is before the Court on the United States of America’s (“USA”) Opposed
Motion to Alter or Amend Judgment, ECF No. [102]. Defendant Isac Schwarzbaum
(“Schwarzbaum”) filed a Response, ECF No. [103], to which the USA did not file a Reply. The
Court has carefully considered the parties’ submissions, the record in the case, the applicable law,
and is duly advised. For the following reasons, the USA’s Motion is granted.
I. BACKGROUND
On August 27, 2018, the USA filed a Complaint, ECF No. [1], to collect outstanding civil
penalties assessed against Defendant Schwarzbaum for willful failure to timely report interest on
foreign bank accounts (known as an “FBAR violation”) as required under 31 U.S.C. § 5314. See
id. at 1. Prior to the commencement of this lawsuit, the Internal Revenue Service (“IRS”) assessed
a mitigated penalty against Defendant totaling $13,729,591.00 for the FBAR violations spanning
the years 2006 through 2009. See Findings of Fact and Conclusions of Law, ECF No. [92] at 13.
Following trial, the Court determined Defendant’s FBAR violation for the year 2006 was
non-willful, see id. at 18–20, that his FBAR violations for the years 2007 through 2009 were
willful, see id. at 20–22. Yet, the Court also found the IRS’s method for calculating the mitigated
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penalty was improper under 31 U.S.C. § 5321. See id. at 22–26. As such, the Court instructed the
parties to submit supplemental briefing on the “new proposed amount of penalties to be assessed
against [Defendant] for a non-willful FBAR violation in tax year 2006, and willful FBAR penalties
for tax years 2007, 2008, and 2009.” Id. at 26.
The USA submitted a Supplemental Post-Trial Brief, ECF No. [93], on August 24, 2019,
and Defendant submitted a Supplemental Brief, ECF No. [94], on the same day. In its Brief, the
USA argued “[t]o the extend the IRS erred in its methodology, the error did not yield penalties in
excess of the statutory maximum. In other words, the error was harmless.” ECF No. [93] at 3.
After reviewing the parties’ submissions, the Court entered an Order Assessing Penalties
(“Assessment Order”), ECF No. [98], “assess[ing] $12,907,952.00 in penalties against
[Defendant] for willful violations of the FBAR filing requirements for tax years 2007, 2008, and
2009.” Importantly for the purposes of this Order, the Court disagreed with the USA’s argument
that any error in the IRS’s penalty calculation was “harmless” because the Court’s own penalty
calculation — $12,907,952.00 — was less than that assessed by the IRS — $13,729,591.00. The
Court explained as follows:
In its Decision, the Court determined that Schwarzbaum’s violation of the FBAR
reporting requirement for tax year 2006 was non-willful, and that the subsequent
FBAR violations for tax years 2007, 2008, and 2009 were willful. However, based
upon the evidence presented at trial, the Court also concluded that the penalty
assessed by the [USA] did not conform with 31 U.S.C. § 5321, because rather than
utilizing 50% of the balance in each account at the time of the violation (which was
the deadline to file the FBAR or June 30 of each year), the [USA] used the highest
aggregate balance in each of the accounts for each year as reported by
Schwarzbaum on a penalty calculation worksheet provided in connection with his
OVDI disclosures. As a result, the Court concluded that the IRS used the incorrect
base amounts to calculate the FBAR penalties in this case.

ECF No. [98] at 1–2 (internal record citations omitted).

Following the Assessment Order, the Court entered Final Judgment in favor of the USA
and ordered Defendant to pay the USA a penalty amount of $12,907,952.00, in addition to late
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payment penalties and interest. ECF No. [99].The Court’s calculation of the penalty amount in the
Assessment Order, and the associated late payment penalties and interest, are the subject of the
Rule 59 Motion presently before the Court.
II. LEGAL STANDARD

The grounds for granting a Rule 59(e) motion “are newly-discovered evidence or manifest
errors of law or fact.” Arthur v. King, 500 F.3d 1335, 1343 (11th Cir. 2007) (citation and internal
quotation marks omitted). A Rule 59 motion may not be used “to relitigate old matters, raise
argument or present evidence that could have been raised prior to the entry of judgment.” Michael
Linet, Inc. v. Vill. of Wellington, Fla., 408 F.3d 757, 763 (11th Cir. 2005) (citations omitted). The
decision to alter or amend judgment under Rule 59(e) “is committed to the sound discretion of the
district court.” O'Neal v. Kennamer, 958 F.2d 1044, 1047 (11th Cir. 1992).
II. DISCUSSION

A. Harmless Error Analysis

The USA requests the Court alter the penalty amount in the Assessment Order, explaining
that the Court mistakenly identified the IRS’s penalty amount for the years 2007 through 2009 as
$13,729,591.00, when it in fact was $12,555,813.00. See ECF No. [102] at ¶ 6. According to the
USA, the former, higher amount incorporated a FBAR penalty for the year 2006, which the Court
rejected outright, making the later, lesser, amount the appropriate calculation for the years 2007
through 2009:
In determining the correct amount of the penalties for 2007–2009, this Court
appears to state that the total amount that the IRS assessed for those three years was
$13,729,591. The United States respectfully notes that the IRS assessed a total of
$13,729,591 for all four years in suit, i.e., 2006–2009. While the total determined
by the Court (i.e., $12,907,952) is less than the total assessments for 2006–2009
(i.e., $13,729,591), it is more than the total amount the IRS assessed for 2007–2009
($12,555,813).
The United States does not seek a judgment for more than the amount of the
assessed 2007–2009 FBAR penalties requested in its complaint (plus late-payment
penalties and interest).
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ECF No. [102] at ¶¶ 5–6 (internal record citations omitted). Because the $12,555,813.00 IRS-
calculated penalty is less than the $12,907,952.00 Court-calculated penalty, the USA argues the
“harmless error” argument previously rejected by the Court is valid.
Although the USA seeks a reduction in the penalty amount (i.e. from the $12,907,952.00-
Court-calculated penalty to the $12,555,813.00-IRS-calculated penalty), Defendant contests the
Motion. According to Defendant, the USA is requesting the Court alter its judgment based on IRS-
calculations that the Court already rejected in the Assessment Order. See ECF No. [103] at 1
(“[T]he government asks this Court to reinstate the IRS’s original penalty assessments — which
the Court already set aside as unlawful, and to approve the IRS’s methodology for computing those
penalty assessments — which the Court expressly rejected as unlawful.”).
The Court finds the USA is correct, and Defendant’s position is based on an apparent
misinterpretation of the Assessment Order.
In the Assessment Order, the Court found that the IRS miscalculated the penalty amount
and that the miscalculation was not “harmless error” because it resulted in a sum that was higher
than the Court’s calculation. In doing so, the Court identified $13,729,591.00 as the initial amount
assessed by the IRS and compared that amount to its own calculation of $12,907,952.00. The USA
correctly points out that the sum of $13,729,591.00 included penalties assessed for 2006 as well
as years 2007 through 2009. But because the Court found that Defendant was subject to penalties
for willful FBAR violations for the years 2007 through 2009 only, the USA only seeks a penalty
amount of $12,555,813.00. This amount is lower than the Court’s calculation of $12,907,952.00,
and the Government seeks only the lesser amount. Because the Government seeks a penalty
amount less than the Court’s calculation, the Court finds —– contrary to its initial finding in the
Assessment Order — any error in the Government’s calculation is harmless.
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Defendant insists “[t]he [G]overnment’s . . . suggested remedy is reinstatement of the IRS’s
original, illegal assessments,” but this is not precisely correct. Instead, the USA requests the Court
alter the penalty amount in the Assessment Order because of a calculation error that affected the
Court’s analysis of the USA’s harmless error argument. Defendant seems to concede as much
when he concludes “[t]he [G]overnment’s Rule 59(e) motion to alter or amount the judgment is
nothing more than an impermissible attempt to re-litigate its harmless error argument[.]” ECF No.
[103] at 4. Although the USA is re-litigating its harmless error argument, it is doing so because
the Court made a factual error by identifying the amount sought by the USA as $13,729,591.00
instead of $12,555,813.00. And, Rule 59(e) motions may be granted where a party identifies a
manifest error of fact, see Arthur, 500 F.3d at 1343, not only — as Defendant contends — “where
controlling law has changed, new evidence is available or there is a need to prevent manifest
injustice[.]” ECF No. [103] at 4. Stated otherwise, although the Court labored in making its own
calculation, this calculation is subject to harmless error because the USA is seeking a smaller
penalty than the Court assessed. Therefore, Defendant’s FBAR penalties amount to
$12,555,813.00.
B. The Penalty Amount
The USA also requests the Court amend the Final Judgment to include the specific amount
of the late-payment penalties and interest that have accrued as of the date of the judgment. “The
Supreme Court has held that a timely post-judgment motion for discretionary prejudgment interest
is a Rule 59(e) motion, and it indicated that the result would not differ in a case involving
prejudgment interest as a matter of right.” Alhassid v. Bank of Am., N.A., 688 F. App’x 753, 761
(11th Cir. 2017). “Rule 59 is the proper procedural mechanism to obtain a more complete and
explicit recitation in the final judgment of the monetary amount of a judgment.” Mitra v. Glob.
Fin. Cor., No. 08-80914-Civ, 2009 WL 2423104, at *1 (S.D. Fla. Aug. 6, 2009) (citing Herzog
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Contracting Corp. v. McGowen Corp., 976 F.2d 1062, 1065 (7th Cir.1992); other citations
omitted).
Final Judgment was entered on May 19, 2020. See ECF No. [99]. As previously discussed,
Defendant is subject to FBAR penalties amounting to $12,555,813.00, or $4,185,271.00 for each
of years 2007, 2008, and 2009. Regarding prejudgment interest, because the applicable annual
interest rate in this case is 1%,
1
pre-judgment interest amounts to $459,577.16. Regarding late-
payment penalties, because 31 U.S.C. § 1717(e)(2) authorizes “a penalty charge of not more than
6 percent a year for failure to pay a party of a debt more than 90 days past due,” late-payment
penalties amount to $2,757,462.93. Therefore, as of May 19, 2020, Defendant owes the USA
$15,722,853.09. The USA is also entitled to post-judgment interest under 28 U.S.C. § 1961
beginning May 19, 2020.
Accordingly, it is ORDERED AND ADJUDGED that the USA’s Motion to Alter or
Amend Judgment, ECF No. [102], is GRANTED. Defendant Isac Schwarzbaum is assessed
$12,555,813.00 in FBAR penalties, plus late-payment penalties in the amount of $2,757,462.93,
pre-judgment interest in the amount of $459,577.16, and post-judgment interest.
DONE AND ORDERED in Chambers at Miami, Florida, on August 26, 2020.

_________________________________
BETH BLOOM
UNITED STATES DISTRICT JUDGE

Copies to: Counsel of Record

1
See Fiscal Service, 80 FR 69777-02, 2015 WL 6866073 (Nov. 10, 2015) (providing the interest rate to be
used in assessing interest charges under 31 U.S.C. section 3717 for calendar year 2016 is one percent).

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