Sanctions imposed on tax avoiders reversed for lack of due process

U.S. v. Melot, 2014 WL 4783413 (9/26/14) (N.M.) (Published) - The 10th reverses sanctions imposed on tax avoiders. The evidence indicated the Melots had a friend file a motion to intervene in a case where the government sought an order to sell the Melots' real property to pay off tax assessments. The friend asserted he had a lien on the property. Unfortunately, this friend was living in prison, not in Hobbs, as he had claimed, and had no liens. At the end of the hearing on the matter the government sought reimbursement of its costs. The Melots' counsel responded that if Rule 11 sanctions were to be imposed the Melots were entitled to notice and an opportunity to be heard. Subsequently, the magistrate judge gave notice of a possible contempt hearing because of the Melots' deceptive lien intervention attempt. The district court, without holding the Melots in contempt, imposed sanctions: removal of Ms. Melot and her children from the property, cost reimbursement and imposition of filing restrictions. This violated due process. The Melots were not given notice or an opportunity to be heard with respect to the possible sanctions or the basis for the sanctions--i.e, that it would be based on the court's inherent authority, not Rule 11.