Dept. of Taxes v. Giannoni, No. 755-9-16 Cncv (Mello, J., Nov. 9, 2016).
 [The text of this Vermont trial court opinion is unofficial. It has been reformatted from the original. The accuracy of the text and the
accompanying data included in the Vermont trial court opinion database is not guaranteed.]

                                                     STATE OF VERMONT

SUPERIOR COURT                                                                              CIVIL DIVISION
Chittenden Unit                                                                             Docket No. 755-9-16 Cncv

 STATE OF VERMONT, DEPARTMENT OF
 TAXES,
      Plaintiff,

 v.

 CHARLES P. GIANNONI,
     Defendant.


                                                   DECISION AND ORDER
                                                RE: MOTION TO RECONSIDER

        This is an action to collect allegedly unpaid personal income taxes from the tax years
2004, 2005, and 2009. The Department of Taxes (Department) moved for entry of default and
default judgment on October 17, 2016. The Court dismissed the complaint without prejudice
because “[a]ll claims appear to be barred by the statute of limitations, and plaintiff has provided
the Court with no information to conclude otherwise.” State of Vermont, Dept. of Taxes v.
Giannoni, No. 755-9-16 Cncv (Oct. 18, 2016) (Mello, J.). The Department now moves the Court
to reconsider its dismissal. Elizabeth M. Hannon, Esq. represents the Department, and Mr.
Giannoni represents himself.
                                              Discussion

        This Decision and Order addresses two issues. The first is whether the Court erred in
dismissing the complaint and should instead provide the parties with an opportunity to be heard
on the issues. The second is whether the Court should issue a default judgment based on the
Departments filings.

        As to the first issue, the Department argues that the Court should have notified the parties
and given the Department an opportunity to address the “asserted grounds for dismissal” before
dismissing the complaint sua sponte. Huminski v. Lavoie, 173 Vt. 517, 519 (2001) (mem.).
“Notice of the motion to dismiss, and the grounds on which it is based, is ordinarily afforded to
alert the plaintiff to the specific legal theories underlying the challenge, and to enable the
plaintiff to respond meaningfully by countering the legal arguments asserted, or by clarifying the
factual allegations to conform to the requirements of a valid cause of action.” Id., 519–20. The
Court agrees and will accordingly consider the Department’s argument and materials that it
submitted with its motion to reconsider.
        As to the question of whether the Court should issue a default judgment, fairness and
justice are better served when the Court resolves disputes on their merits. See Desjarlais v.
Gilman, 143 Vt. 154, 158–59 (1983) (“Generally, the rules relating to default judgments should
be liberally construed in favor of defendants, and of the desirability of resolving litigation on the
merits, to the end that fairness and justice are served.”). Judgment by default is at the trial court’s
discretion. Ayer v. Hemingway, 2013 VT 37, ¶ 21, 193 Vt. 610. Notably, the Court “has the
authority to consider expiration of the statute of limitations if apparent on the face of plaintiff's
complaint” and “to hold otherwise would obligate the court to issue judgment against a party that
has not made an appearance no matter how old or unjust the claim.” DaimlerChrysler Servs. N.
Am., LLC v. Ouimette, 2003 VT 47, ¶ 6, 175 Vt. 316.

       The assertions in the Department’s pleadings and motions leave the Court with questions
about whether fairness and justice would be served by issuing a default judgment. The Court’s
primary concern is that the Department brought its complaint to collect allegedly unremitted
personal income taxes long after the taxes were originally due. Neither the complaint nor the
motion for default judgment included sufficient information for the Court to conclude that the
complaint is not barred by the statute of limitations.

        In support of its motion to reconsider, the Department now submits that it issued First
Notices of Audit Assessment on February 22, 2011. The Department argues that the limitations
period does not lapse until six years from the date of the assessment. 32 V.S.A. § 5892(a). The
Department may generally issue a notice of deficiency and assessment of penalties and interest
“at any time within three years after the date that tax liability was originally required to be paid
under this chapter.” 32 V.S.A. § 5882(a); see also 32 V.S.A. § 5882(b)(1). The statute allows for
exceptions. For instance, “[i]f the deficiency is caused by reason of fraud or the willful intent of
the taxpayer to defeat or evade this chapter, the notification or assessment may be made at any
time.” 32 V.S.A. § 5882(b)(4) (emphasis added).

        In this case, however, the pleadings, motion for default judgment, and materials
submitted in support of the motion for default judgment and the motion to reconsider do not
evince any reason why the Department would have had more than three years to issue the notices
of deficiency after the 2004 and 2005 taxes were originally due.

        The Court is aware that when a taxpayer fails to make use of the available appeal process
after receiving a notice of deficiency, “[t]he taxpayer shall not thereafter contest, either directly
or indirectly, the tax liability as therein set forth, in any proceeding.” 32 V.S.A. § 5887(b); see
also Stone v. Errecart, 165 Vt. 1, 6 (1996) (failure of taxpayers to exhaust administrative
remedies deprived Superior Court of jurisdiction to hear a class action suit for recovery of unpaid
refunds); State Dep't of Taxes v. Tri-State Indus. Laundries, Inc., 138 Vt. 292, 298 (1980)
(section 5887 excludes other routes of appeal). The plain meaning of section 5887(b) is that
taxpayers waive their ability to contest the Department’s notice of deficiencies, interest, and
penalties when they fail to petition or appeal within the prescribed time period. However, the
Court questions whether the Department had authority to begin with to issue notices of
deficiency in 2011 for 2004 and 2005 taxes. Even when the Department took the opportunity, in

                                                   2
its motion to reconsider, to show the basis of its claim, it did not demonstrate to the Court that
was entitled to a default judgment.

        Having considered the argument and materials that the Department now brings, the Court
is not persuaded that it should issue a default judgment. The Department, on notice about the
Court’s reason for dismissal, still fails to show that it had the authority under section 5882 to
issue notices of deficiency in 2011 for 2004 and 2005 taxes upon which it could base the present
complaint. The claims for 2004 and 2005 taxes are time-barred and therefore dismissed. The
claim for 2009 taxes is reinstated.

        Mr. Giannoni has appeared, despite the Department’s assertion to the contrary. The
Department states that Mr. Giannoni “has failed to plead or otherwise defend this action within
20 days after service of the summons and complaint upon him.” However, Mr. Giannoni timely
returned an executed waiver of service. He also filed an answer with the Court on September 27,
2016 but did not file a certificate of service as required by Vermont Rule of Civil Procedure 5(h).
Although Mr. Giannoni’s answer did not comply in every way with the Rules of Civil Procedure,
it does express an intent to defend. Because Mr. Giannoni has appeared, the Court must conduct
a hearing before entering a default judgment with regard to the 2009 taxes. V.R.C.P. 4(b)(4).

        In the future, if the Department seeks default judgment to collect allegedly unremitted
taxes that were originally payable more than 6 years before the action was filed, the Department
must submit proof by affidavit and other materials that show that the Department was authorized
to issue the notice of deficiency and assessment and that the action has been brought within the
statute of limitations period.

                                               Order

        The Department’s Motion to Reconsider is granted. The motion for default is denied and
the portions of the complaint related to collection of 2004 and 2005 taxes are dismissed without
prejudice. The portion of the complaint related to collection of 2009 taxes is reinstated. The clerk
will set the matter for a status conference in 30 days.
       Dated this ___ day of November, 2016.
                                                       ______________________
                                                       Robert A. Mello
                                                       Superior Court Judge




                                                  3
