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Судебные дела / Зарубежная практика  / PAUL JEAN and GEORGE JEAN, Plaintiffs, v. UNITED STATES OF AMERICA, Defendant., UNITED STATES DISTRICT COURT DISTRICT OF MASSACHUSETTS ═, CIVIL ACTION NO. 00-11296-DPW ═, October 23, 2002

PAUL JEAN and GEORGE JEAN, Plaintiffs, v. UNITED STATES OF AMERICA, Defendant., UNITED STATES DISTRICT COURT DISTRICT OF MASSACHUSETTS ═, CIVIL ACTION NO. 00-11296-DPW ═, October 23, 2002

24.06.2008  

PAUL JEAN and GEORGE JEAN, Plaintiffs, v. UNITED STATES OF AMERICA, Defendant.

UNITED STATES DISTRICT COURT DISTRICT OF MASSACHUSETTS ═

CIVIL ACTION NO. 00-11296-DPW ═

October 23, 2002

MEMORANDUM AND ORDER

Plaintiffs Paul and George Jean commenced this action against the United States pursuant to 28 U.S.C. ╖ 7422(a). Plaintiffs contend that the Internal Revenue Service incorrectly determined that they were "responsible persons" for the failure of Focus Financial Services, Inc. to pay employment taxes for the calendar quarters beginning March 31, 1992 and ending September 30, 1992. The United States answered with a counterclaim against the Jeans seeking $18,078.55 from George Jean and $13,683.04 from Paul Jean. ═

Following the close of discovery, plaintiff Paul Jean submitted the instant motion for summary judgment. George Jean and the United States have not chosen to file dispositive motions. ═

FACTS 1

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1 The United States has failed, in contravention of Local Rule 56.1, to submit a statement of material facts as to which it contends that there exists a genuine issue to be tried. Under Local Rule 56.1, an opposition statement must contain a concise statement of the material facts of record as to which it is contended that there exists a genuine issue to be tried with page references to affidavits, depositions and other documentation. Id . The failure to comply adequately with Local Rule 56.1 may constitute grounds for a determination that the moving party's statement of facts is admitted. See Moore v. Marty Gilman, Inc. , 965 F. Supp. 203, 207 n. 1 (D. Mass. 1997) (plaintiff's statement of material facts deemed to be admitted where defendant failed to submit opposing statement); L.R. 56.1. ═

In its opposition memorandum, the United States has listed facts and has attached the depositions of the Jeans and Michael Pottle in their entirety with page references. Having wide latitude in determining how rigorously to enforce the local rules of this Court, see Airline Pilots Ass'n v. Precision Valley Aviation, Inc., 26 F.3d 220, 224 (1 st Cir. 1994), I will treat pages 4 and 5 of the opposition memorandum as the United States' opposition statement. I note only that it is not too much to expect of the defendant United States, the most frequent litigant in this Court, that it will fully comply with the Local Rules. ═

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Beginning in 1987, Paul Jean was employed as a bookkeeper at Focus, a company that also employed his father, George Jean, and Michael Pottle. 2 As bookkeeper, Paul logged and kept track of bills as they were received and then filed them; he prepared invoices and wrote checks; he kept track of amounts owed to and owed by clients and filed payroll statements. During the time period at issue, Paul was a signatory on Focus' bank accounts. Paul Jean did not serve as an officer or director or own shares of Focus. Nor did Paul have the authority to hire or fire employees. ═

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2 ═ Neither party has included certain of the background information in their statements of facts. Because this information can be found in the depositions relied on by both parties and is thus part of the record, I have probed and reviewed that record to determine if any genuine dispute of material facts exists. See Stepanischen v. Merchants Despatch Transp. Corp., 722 F.2d 922, 930 (1 st Cir. 1983) (stating that Rule 56(c) expressly provides that the district court should consider depositions, among other record items, in deciding whether the moving party has carried its burden of proving that no genuine issue of material fact exists even if not referred to by a party). I note in this connection that there does not appear to be any dispute about this background information. ═

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During the relevant period, Focus experienced financial difficulties. George and Paul Jean and Michael Pottle conducted frequent meetings to discuss the financial obligations of the company. During this period, Paul was aware that tax liabilities were accruing against the company and that the salary and wages of Focus employees, as well as the invoices of other creditors, were paid while the tax liabilities were not. ═

In his affidavit, Paul states that he did not have the authority at Focus to determine which creditors were to be paid. The United States, however, points to Paul's deposition testimony that he could pay certain invoices based on the amount involved. Sometime in the summer of 1992, Paul sent a letter to at least one of Focus' banks to revoke his check-writing authority there, and that authority was revoked beginning August 3, 1992. ═

ANALYSIS

I. SUMMARY JUDGMENT STANDARD

A movant is entitled to summary judgment under Rule 56 when the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, demonstrate that there is no genuine issue of material fact and that the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c); Celotex v. Catrett , 477 U.S. 317, 322 (1986). A "genuine" issue of material fact exists when "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248 (1986); accord McCarthy v. Northwest Airlines, Inc. , 56 F.3d 313, 315 (1 st Cir. 1995) (same). A fact is material if it might affect the outcome of the suit under governing law. Anderson , 477 U.S. at 248. ═

II. THE LIABILITY OF PAUL JEAN UNDER SECTION 6672

The Internal Revenue Code requires employers to withhold social security and federal income taxes from employees' wages. 26 U.S.C. ╖╖ 3102, 3402. The amounts collected from employees' wages are considered to be held in trust for the United States and must be paid over quarterly. 26 U.S.C. ╖ 7501; 26 C.F.R. ╖ 31.6011(a)-1(a)(1) & ╖ 31.6011(a)-4; see Slodov v. United States , 436 U.S. 238, 243 (1978). The funds may not be used by the employer for any other obligation. See Slodov , 436 U.S. at 243-44. ═

If an employer does not remit withheld payroll taxes, a trust fund recovery penalty may be imposed. Section 6672 provides, in part, that: ═

Any person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such tax, or truthfully account for and pay over such tax, or wilfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, in addition to other penalties provided by law, be liable to a penalty equal to the total amount of the tax evaded, or not collected, or not accounted and paid over. ═

26 U.S.C. ╖ 6672. Liability under section 6672 requires a determination that (1) a person is "responsible" for collecting, accounting for, and paying over the taxes; and (2) that he acted "willfully" in failing to do so. Vinick v. United States , 205 F.3d 1, 3-4 (1 st Cir. 2000); see 26 U.S.C. ╖ 6672.

A. AT A MINIMUM, WHETHER PAUL JEAN WAS A "RESPONSIBLE PERSON" UNDER SECTION 6672 FROM MARCH 31, 1992 TO AUGUST 2, 1992 IS A GENUINE ISSUE OF MATERIAL FACT

Analysis of the term "responsible person" has been defined in this circuit as including seven non-exclusive factors. Vinick , 205 F.3d at 7. The analysis focuses on whether the party:

(1) is an officer or member of the board of directors, (2) owns or possesses an entrepreneurial stake in the company, (3) is active in the management of day-to-day affairs of the company, (4) has the ability to hire and fire employees, (5) makes decisions regarding which, when and in what order outstanding debts or taxes will be paid, (6) exercises control over daily bank accounts and disbursement records, and (7) has check-signing authority. ═

Id . (citations omitted). No single factor is determinative of responsibility, and the examining court must look at the "totality of the circumstances" in making a responsibility determination. Id . (citations omitted). The crux of the inquiry is whether the person had the "actual authority or ability, in view of his status within the corporation, to pay the taxes owed." Id . at 8. ═

1. Paul Jean's "Status" at Focus (Factors One and Two)

The first two factors outlined in Vinick refer to the taxpayer's status within the corporate structure. Id . at 8. Responsible persons under section 6672 can include individuals who are not officers of the corporation. Caterino v. United States , 794 F.2d 1, 6 n.1 (1st Cir. 1986). Based on the parties' respective statements of facts and my own probe of the record, I find that Paul Jean was clearly not an officer or a member of the board of directors of Focus during the relevant time period and did not possess an entrepreneurial stake in the company. ═

2. Paul Jean's Involvement in the Operation of Focus (Factors Three and Four)

The third and fourth factors focus on the taxpayer's involvement in the operation of the company. Vinick , 205 F.3d at 8. The parties appear to agree that factor four, the ability to hire or fire employees, was not part of Paul Jean's duties.

Factor three, which concerns the party's involvement in the day-to-day management of the corporation, anticipates frequent and substantial, not occasional, engagement with the company's business affairs in order to provide a basis for responsibility. Vinick , 205 F.3d at 8-9. Here, the United States refers to Paul Jean's deposition testimony that he participated in daily meetings with his father and Michael Pottle to discuss the financial obligations of the company. Paul Jean also testified that he logged and kept track of bills as they were received and filed them, prepared invoices and disbursed corporate checks signed by him in payment of certain bills and expenses, and kept track of amounts owed to and owed by clients. 3 Based on these facts, I find that Paul Jean was actively engaged in substantial aspects of the management of the day-to-day affairs of Focus. ═

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3 ═ Plaintiff asserts in his statement of undisputed facts that Focus was controlled by Michael Pottle and that Paul "did not have the actual ability to establish financial policies or procedures." Even assuming that both of these contentions are true, they do not prevent a finding that Paul was involved in the day-to-day management of Focus. See Keohan v. United States , 138 F. Supp. 2d 62, 75 (D. Mass. 2001) (stating that fact that another individual may be more responsible or have more authority over firm's financial affairs does not make one any less responsible under ╖ 6672) (citing Harrington v. United States , 504 F.2d 1306, 1312 (1 st Cir. 1974)). ═

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3. Paul Jean's Involvement in Focus' Financial Operations (Factors Five through Seven)

The final three factors assess involvement in the financial operations of the company. The First Circuit in Vinick referred to these factors as the "heart of the matter" because they "identif[y] most readily the person who could have paid the taxes, but chose not to do so." Vinick , 205 F.3d at 9 (citations omitted). Of the three factors, the Vinick court identified factor five, the decision-making authority to determine which, when, and in what order outstanding debts or taxes will be paid, as the "most important" in determining whether liability exists. Id . (citations omitted). ═

On the surface, it appears that the parties dispute whether Paul Jean had any decision-making authority over the payment of creditors. Paul Jean has submitted an affidavit in which he asserts that he "did not have the authority at Focus to determine which creditors were to be paid" and refers to Michael Pottle's deposition testimony that Paul was a part-time employee who did not have "independent" authority to sign checks. The defendant points to Paul's deposition testimony that for certain "everyday" obligations, Paul did not have to seek prior approval in order to effect payment. Paul also testified that during the relevant period, he met frequently with his father and Michael Tottle to discuss the financial affairs of the company. ═

As a preliminary matter, it must be emphasized that a party cannot create a material issue of disputed fact through a self-serving affidavit that conflicts with his deposition testimony without explaining the reason for the discrepancy. See Colantuoni v. Alfred Calcagni & Sons, Inc. , 44 F.3d 1, 4-5 (1 st Cir. 1994) (party attempted to resist summary judgment with affidavit that contradicted deposition testimony). Here, the contested portion of Paul's affidavit is at odds with his deposition testimony and no explanation has been provided for this discrepancy. Therefore, I will disregard paragraph two of Paul's affidavit and consider only the Pottle deposition testimony. ═

Michael Pottle's testimony may be read to suggest that Pottle had the authority to override Paul's decisions on certain financial matters, but this fact does not diminish Paul's own significant role in the everyday financial affairs of Focus. See Finley v. United States , 839 F. Supp. 1484, 1487 (D. Kan. 1993). ═

A party need not have the "final word as to which creditors should be paid in order to be subject to liability"; it is sufficient that he had "significant control" over disbursements. Hochstein v. United States , 900 F.2d 543, 547-548 (2d Cir. 1990). 4 That Paul Jean had sufficient decision-making authority over the payment of creditors is demonstrated by the fact that he could issue small checks without either George Jean's or Michael Tottle's approval on a number of occasions. See Howard v. United States , 711 F.2d 729, 734 (5 th Cir. 1983); see also Gustin v. United States , 876 F.2d 485, (5 th Cir. 1989) (╖ 6672 does not require employees to pay over taxes when they do not have the actual authority to do so, but the law does impose a duty on employees "not to dissipate the trust by paying other creditors with money owed to the government"); Keohan v. United States , 138 F. Supp. 2d 62, 74 (D. Mass. 2001) (stating that "[e]ven the discretion to issue smaller checks without the approval of a superior may demonstrate one's authority to pay the employer's withholding taxes to the IRS") (citations omitted). Therefore, it appears that Paul did have sufficient decision-making authority to determine which, when, and in what order, certain debts were to be paid. ═

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4 ═ In his memorandum, Paul asserts that there is a split in authority among the circuits (the Fourth, Ninth and Federal as against the remaining circuits) concerning whether the authority to distinguish between creditors must be "actual and exercised" as opposed to "potential" authority. He further argues that the First Circuit adopted an "actual, exercised authority" standard in Vinick . I find both the presentation of the purported conflict and the characterization of the First Circuit's opposition to be overdrawn. ═

The cases cited by plaintiff do not support the assertion that there is a split in circuit authority. Rather they stand for the proposition that substance (actual circumstances) rather than form (mere titular authority) is most relevant in determining whether a party is a "responsible person." See, e.g. , Purcell v. United States , 1 F.3d 932, 937 (9 th Cir. 1993) (concluding that an individual may be held to be responsible if he had the authority required to exercise significant control over the corporation's financial affairs " regardless of whether he exercised such control in fact ") (emphasis added); O'Connor v. United States , 956 F.2d 48, 51 (4 th Cir. 1992) (titular authority is not sufficient; substance of circumstances must demonstrate that officer exercises and uses authority over financial affairs or management or is under a duty to do so); Godfrey v. United States , 748 F.2d 1568, 1576 (Fed. Cir. 1984) (determination of "duty" under ╖ 6672 is a test of substance, not form). This holding is consistent with decisions from this and other circuits. See, e.g. , Caterino v. United States , 794 F.2d 1, 5 (1 st Cir. 1986) (liability under ╖ 6672 not limited to one individual but may be imposed upon all individuals who have "significant" control over disbursement of funds); Hochstein v. United States , 900 F.2d 543, 546 (2d Cir. 1990) (central question is individual's "degree of control" over enterprise's finances); accord Denbo v. United States , 988 F.2d 1029, 1032 (10 th Cir. 1993) (same); Bowlen v. United States , 956 F.2d 723, 728 (7 th Cir. 1992) (same); Donelan Phelps & Co., Inc. v. United States , 876 F.2d 1373, 1376 (8 th Cir. 1989) (same); Gustin v. United States , 876 F.2d 485, 491-492 (5 th Cir. 1989) (same); United States v. Vespe , 868 F.2d 1328, 1332 (3d Cir. 1989) (same); Gephart v. United States , 818 F.2d 469, 473 (6 th Cir. 1987) (same). ═

═ The First Circuit reference in Vinick to "actual, exercised authority" does not create any conflict of authority. The First Circuit noted that titular authority is insufficient to create liability and that the issue is whether there is "significant control." See Vinick , 205 F.3d at 8. Finally, although plaintiff attempts to present a conflict by citing a Fifth Circuit decision, Barnett v. IRS , 988 F.2d 1449 (5 th Cir. 1993) as creating a "potential" authority standard, I note that the First Circuit actually relied on Barnett . Vinick , 205 F.3d at 8 (stating that crucial inquiry is whether person had "effective power" to pay taxes, whether he had actual authority or ability to pay the taxes owed). ═

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Neither party disputes that Paul Jean had check-signing authority and that he exercised that authority until August 3, 1992. Check-writing authority, however, is significant only if it demonstrates financial control. Vinick , 205 F.3d at 12. ═ Here, Paul Jean had the authority to make small payments to creditors and participated in frequent discussions about the financial obligations of Focus. There is raised in this record a genuine issue of material fact about the significance of Paul's responsibilities to the financial activity of the company. ═

4. Conclusion

Because there are genuine issues of material fact in dispute regarding whether Paul Jean was a "responsible person" within the meaning of Section 6672 from March 31, 1992 through August 2, 1992, his motion for summary judgment must be denied. ═

B. PAUL JEAN WAS NOT A "RESPONSIBLE PERSON" UNDER SECTION 6672 AFTER AUGUST 2, 1992

By contrast, there can be no genuine issue of material fact that Paul's relinquishment of check-signing authority in August 1992 rendered him not a "responsible person" after that time because he was not in a position to exercise authority to direct payment of taxes. See Vinick , 205 F.3d at 12 (taxpayer not responsible where he did not have access to checkbook during applicable period). ═

C. AT A MINIMUM, WHETHER PAUL JEAN'S ACTIONS WERE WILLFUL UNDER SECTION 6672 IS A GENUINE ISSUE OF MATERIAL FACT

In addition to requiring a finding of responsibility, Section 6672 imposes a finding of willfulness in failing to pay over the withheld taxes. To act "willfully" within the meaning of Section 6672 does not require the responsible person to have acted with a bad motive or intent to defraud. Thomsen v. United States , 887 F.2d 12, 17 (1 st Cir. 1989). Instead, a "voluntary, conscious and intentional" act to prefer other creditors over the United States is sufficient. Id . Evidence that the responsible person had "knowledge of payments to other creditors after he was aware of the failure to pay withholding tax is sufficient for summary judgment on the question of willfulness," Howard , 711 ═ F.2d at 735, or if the responsible person "clearly ought to have known" that "there was a grave risk that withholding taxes were not being paid" and if he was in a position to determine whether they were or not. Thomsen , 887 F.2d at 18 (citation omitted).

Here, Paul Jean acknowledged in his deposition that tax liabilities were accruing against the company and that salary and wages were paid, whereas the accruing tax liabilities were not. There consequently appears to be at a minimum a genuine issue of material fact whether Paul Jean "willfully" failed to pay over withheld taxes for the period of March 31, 1992 through August 2, 1992. See Thomsen , 887 F.2d at 18; Howard , 711 F.2d at 735. ═

CONCLUSION

For the reasons set forth more fully above, plaintiff Paul Jean's motion for summary judgment is denied as to the time period of March 31, 1992 through August 2, 1992 and granted as the time period August 3, 1992 to September 30, 1992. ═

This case shall be set for pre-trial conference. ═

______________________________ ═

DOUGLAS P. WOODLOCK

UNITED STATES DISTRICT JUDGE ═

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