Судебные дела / Зарубежная практика / NORTH LOUISIANA REHABILITATION CENTER, INC., v. UNITED STATES of America., United States District Court, W.D. Louisiana, Monroe Division., 179 F.Supp.2d 658, No. 00-0445., November 8, 2001

NORTH LOUISIANA REHABILITATION CENTER, INC., v. UNITED STATES of America., United States District Court, W.D. Louisiana, Monroe Division., 179 F.Supp.2d 658, No. 00-0445., November 8, 2001

24.06.2008

NORTH LOUISIANA REHABILITATION CENTER, INC., v. UNITED STATES of America.

United States District Court, W.D. Louisiana, Monroe Division.

179 F.Supp.2d 658

No. 00-0445.

November 8, 2001.

Eddy M. Quijano, Adams & Reese, Ba╜ton Rouge, LA, Jeffrey Cooper, Mesirov Gelman et al, Philadelphia, PA, for Plain╜tiff.

Michael N. Wilcove, U.S. Dept. of Jus╜tice Tax Div., Washington, DC, for Defen╜dant.

RULING

JAMES, District Judge.

This is a suit by Plaintiff North Louisi╜ana Rehabilitation Center, Inc. ("Plaintiff') against the United States of America ("De╜fendant") seeking a refund of employment taxes paid pursuant to an assessment by the Internal Revenue Service ("IRS") based on a determination that certain phy╜sicians should have been treated as em╜ployees rather than as independent con╜tractors. Before the Court is Plaintiff's Motion for Summary Judgment [Doc. No. 34]. Plaintiff asserts that there are no genuine issues of material fact and that it is entitled to summary judgment as a mat╜ter of law against Defendant in the amount of $7,010.90, together with interest and attorney's fees. Defendant contends that genuine issues of fact remain which pre╜clude the entry of summary judgment. Also before the Court is Plaintiffs appeal of Magistrate Judge James D. Kirk's Or╜der granting Defendant's Second Motion for Leave to Withdraw or Amend Admis╜sion [Doc. No. 55].

For the following reasons, Plaintiffs ap╜peal of the Magistrate Judge's Order granting Defendant's Second Motion for Leave to Withdraw or Amend Admission [Doc. No. 55] is DENIED and the Magis╜trate Judge's Order [Doe. No. 53] is AF╜FIRMED. Further, Plaintiffs Motion for Summary Judgment [Doc. No. 34] is GRANTED.

FACTS

Plaintiff, a Louisiana corporation, is one of several majority owned subsidiaries of Continental Medical Systems, Inc. ("CMS"), which operates freestanding for-profit rehabilitation hospitals. In order to provide guidance on medical issues and the establishment of rehabilitation programs, as well as to assure the availability of medical staffing, Plaintiff contracted with various physicians to serve as medical di╜rectors and program directors ("the Physi╜cians"). The Physicians were treated as independent contractors for employment tax purposes. That is, Plaintiff did not pay the employer's share of the Physicians' federal employment or unemployment tax╜es, or withhold federal income tax from their compensation.

Following an employment tax audit for the 1990 through 1995 tax years, the IRS determined that the Physicians should have been treated as employees rather than independent contractors, and as╜sessed employment and unemployment taxes against Plaintiff in the amount of $217,799.53. After an unsuccessful admin╜istrative appeal, Plaintiff filed amended employment and unemployment tax re╜turns, paid a portion of the tax due, and filed a claim for refund and request for abatement for each of the amended re╜turns. The IRS failed to act on Plaintiffs refund and abatement claim within the six╜month period set forth in I.R.C. ╖ 6532(a). As a result, Plaintiff filed the instant suit seeking a refund of $ 7,010.90 paid to the IRS. Defendant filed a counterclaim seek╜ing the total amount of the assessment.

LAW AND ANALYSIS

I. ═ Plaintiff's Appeal of the Magistrate Judge's Order Granting Defendant's Second Motion for Leave to With╜draw or Amend Admission.

On August 15, 2000, Plaintiff served De╜fendant with its First Request for Admis╜sions. Request No. 9 stated, "With re╜spect to Medical Directors, plaintiff has met the substantive consistency test for relief pursuant to Section 530 of the Reve╜nue Act of 1978." See Plaintiff's First Request for Admissions Addressed to De╜fendant United States of America, ╤ 9. On October 5, 2000, Defendant responded, "Defendant interprets the term `substan╜tive consistency test' to refer to Section 530(a)(3) of the Revenue Act of 19 78. On this premise, defendant admits the request. To the extent that the term `sub╜stantive consistency test' refers to some╜thing other than Section 530(a)(3) of the Revenue Act of 1978, defendant objects to this request as being unduly vague." See Defendant's Response to Plaintiffs First Request for Admissions, ╤ 9.

Section 530 of the Revenue Act of 1978, Pub.L. No. 95-600, 92 Stat. 2763, 2885-86 ("Section 530") "shields a taxpayer who pays others for services from employment tax liability if the taxpayer has consistently treated them as other-than-employees un╜less the taxpayer had no reasonable basis for doing so." 303 West 42nd St. Enter., Inc. v. I.R.S. , 181 F.3d 272, 274 (2nd Cir.1999). In order to avail itself of Sec╜tion 530, Plaintiff must meet the substan╜tive consistency requirement; that is, Plaintiff must establish that it has never treated any individual holding a substan╜tially similar position as an employee for employment tax purposes. ¹ Id . at (a)(3).

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^1. In addition to the substantive consistency requirement, Plaintiff must also meet the re╜porting consistency requirement and reasonable basis requirement in order to avail itself of Section 530's safe harbor provisions.

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On March 6, 2001, Defendant filed a Motion for Leave to Withdraw or Amend Admission. In its motion, Defendant ac╜knowledged that all medical directors re╜tained by Plaintiff were treated as inde╜pendent contractors. However, Defendant sought to withdraw or amend its admis╜sion of Request No. 9. Defendant argued that if the substantive consistency require╜ment were applied at the parent level, Plaintiff could not establish this require╜ment because some of its sister corpora╜tions treated medical directors as employ╜ees. Defendant further stated that "[i]f the substantive consistency test may only be applied at the subsidiary level, the ad╜mission would stand." See Defendant's Motion for Leave to Withdraw, or Amend Admission.

On April 30, 2001, the Magistrate Judge denied Defendant's motion as premature. The Magistrate Judge held that discovery would be allowed on this issue and that the motion would be reconsidered if supported by proper legal authority.

Defendant subsequently agreed with Plaintiff that the substantive consistency requirement should be applied separately for each subsidiary.

On August 30, 2001, Defendant filed a Second Motion for Leave to Withdraw or Amend Admission. Defendant again sought to withdraw its admission of Re╜quest No. 9. Defendant argued that a fac╜tual question existed as to whether Dr. Pam Hearn ("Dr.Hearn"), a staff physician employed by Plaintiff in 1993, held a sub╜stantially similar position to that of a medi╜cal director.

On September 4, 2001, the Magistrate Judge granted Defendant's motion and al╜lowed Defendant to withdraw its admission of Request No. 9. Plaintiffs memorandum in opposition to this motion was timely filed on September 17, 2001 ², however it was not considered by the Magistrate Judge prior to granting Defendant's mo╜tion.

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^2. LR7.5W of the Uniform District Court Rules requires that any memorandum in opposition to a motion be filed within 15 days after service of the motion. Defendant's motion was filed on August 30, 2001. Plaintiff's memorandum in opposition was mailed on September 12, 2001. Because of the events transpiring on and around September 11, 2001, the memorandum in opposition was not received by the Court until September 17, 2001. Nevertheless, the Court finds that the memorandum in opposition was filed timely.

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On October 12, 2001, Plaintiff filed an appeal of the Magistrate Judge's Order. Local Rule 74.1W provides that "a party may appeal from a magistrate judge's or╜der by filing with the clerk of court, within 10 days of receipt of a copy of the order, a written statement of appeal specifically designating the order or part thereof ap╜pealed from, the basis for the objection, and a written memorandum in support thereof." Id.

The Magistrate Judge's Order was signed on September 4, 2001. Plaintiffs counsel contends that he did not learn of the Order until October 9, 2001, during a routine check of the docket. However, the record reflects that a copy of the Order was sent to counsel on September 6, 2001. Therefore, Plaintiffs appeal of the Magis╜trate Judge's Order is untimely.

Nevertheless, LR74.1W also provides that "[t]he district judge may also recon╜sider sua sponte any matter determined by a magistrate judge under this rule." Id. Because the Magistrate Judge's Order was entered without the benefit of reviewing Plaintiffs memorandum in opposition, the Court will consider the merits of Plaintiffs appeal. ³

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^3. Although Defendant's a response to Plaintiff's appeal is not due until November 7, 2001, the Court finds that Defendant's position has been fully briefed.

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A magistrate judge's non-disposi╜tive pretrial order is reviewable under the clearly erroneous and contrary to law stan╜dard. 28 U.S.C. ╖ 636(b)(1)(A); Fed. R.Civ.P. 72(a); Castillo v. Frank, 70 F.3d 382, 385-86 (5th Cir.1995).

Rule 36(b) of the Federal Rules of Civil Procedure provides that "the court may permit withdrawal or amendment when the presentation of the merits of an action will be subserved thereby and the party who obtained the admission fails to satisfy the court that withdrawal or amendment will prejudice that party in maintaining the action or defense on the merits." Id . "In order to allow withdrawal of a deemed admission, Rule 36(b) requires that a trial court find that withdrawal or amendment: 1) would serve the presentation of the case on its merits, but 2) would not prejudice the party that obtained the admissions in its presentation of the case." In re Car╜ney, 258 F.3d 415, 419 (5th Cir.2001) (cit╜ing American Automobile Assn v. AAA Legal Clinic of Jefferson Crooke, P.C., 930 F.2d 1117, 1119 (5th Cir.1991)). "Even when these two factors are established, a district court still has discretion to deny a request for leave to withdraw or amend an admission." Id .

Plaintiff argues that the Magistrate Judge's Order was clearly erroneous and contrary to law because Defendant failed to prove that the withdrawal of its admis╜sion would benefit the disposition of the case, and the withdrawal of the admission would severely prejudice Plaintiff and sub╜stantially delay these proceedings.

Defendant argues that a factual question exists as to whether Dr. Hearn held a substantially similar position to that of a medical director. According to Defendant, the withdrawal of its admission would subserve the presentation of the merits in this case and Plaintiff cannot show the requi╜site prejudice.

A. Presentation of the Merits

"In considering whether the presenta╜tion of the merits will be facilitated by permitting an admission to be withdrawn, the court may look at whether the admis╜sion is contrary to the record of the case. The court may allow amendment or with╜drawal of an admission when an admission is no longer true because of changed cir╜cumstances or when through an honest error a party has made an improvident admission. The court must also look at whether the effect of upholding the admis╜sions would be practically to eliminate any presentation of the merits." Ropfogel v. United States, 138 F.R.D. 579, 583 (D.Kan. 1991) (internal citations omitted).

The Court finds that the withdraw╜al of Defendant's admission of Request No. 9 would serve the presentation of the case on its merits. Although Rule 36 al╜lows litigants to request admissions as to the application of the law to the facts, if Defendant's admission were to stand, it would conclusively establish one of the three requirements necessary for relief under Section 530. The Court finds that the determination of whether the substan╜tive consistency requirement was met is best resolved by the presentation of the case on its merits.

B. Prejudice to Plaintiff

"Courts have usually found that the prejudice contemplated by Rule 36(b) re╜lates to special difficulties a party may face caused by a sudden need to obtain evi╜dence upon withdrawal or amendment of an admission." American Automobile Ass'n , 930 F.2d at 1120. "The necessity of having to convince the trier of fact of the truth of a matter erroneously admitted is not sufficient. Likewise, preparing a sum╜mary judgment motion in reliance upon an erroneous admission does not constitute prejudice." F.D.I.C. v. Prusia , 18 F.3d 637, 640 (8th Cir.1994) (internal citations omitted).

The Court finds that the withdrawal of Defendant's admission of Request No. 9 would not prejudice Plaintiff in its presen╜tation of the case. The fact that Plaintiff will have to prove that the substantive consistency requirement was met does not constitute the type of prejudice contem╜plated by Rule 36. Further, there is ade╜quate time before trial to conduct limited discovery on whether Dr. Hearn's position is substantially similar to that of a medical director. Thus, the Court's finding will not result in great delay or expense.

C. Conclusion

For the foregoing reasons, the Court concludes that the Magistrate Judge's Or╜der was not clearly erroneous and contrary to law. Accordingly, Plaintiff's appeal is DENIED, the Magistrate Judge's Septem╜ber 4, 2001, Order is AFFIRMED, and Defendant's admission of Request No. 9 is withdrawn.

II. ═ Plaintiff's Motion for Summary Judgment

A. ═ Motions for Summary Judgment

Summary judgment is appropriate only when the pleadings, depositions, answers to interrogatories and admissions on file, together with any affidavits, show that there are no genuine issues as to any material fact and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). The moving party bears the initial burden of informing the court of the basis for its motion by identi╜fying portions of the record which figh╜light the absence of genuine issues of ma╜terial fact. Topalian v. Ehrman, 954 F.2d 1125, 1132 (5th Cir.1992). A fact is "mate╜rial" if proof of its existence or nonexis╜tence would affect the outcome of the law╜suit under applicable law in the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A dispute about a material fact is "genuine" if the evidence is such that a reasonable fact finder could render a ver╜dict for the nonmoving party. Id. The moving party cannot satisfy its initial bur╜den simply by setting forth conclusory statements that the nonmoving party has no evidence to prove its case. Ashe v. Corley, 992 F.2d 540, 543 (5th Cir.1993).

If the moving party can meet the initial burden, the burden then shifts to the non╜moving party to establish the existence of a genuine issue of material fact for trial. Norman v. Apache Corp., 19 F.3d 1017, 1023 (5th Cir.1994). The nonmoving party must show more than "some metaphysical doubt as to the material facts." Matsushi╜ta Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). In evaluating the evi╜dence tendered by the parties, the court must accept the evidence of the nonmovant as credible and draw all justifiable infer╜ences in its favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

B. ═ Relief to Taxpayers From Employ╜ment Tax Assessments Pursuant to Section 530

Plaintiff contends that regardless of whether the Physicians were employees or independent contractors under the com╜mon law test, it is entitled to the safe harbor provisions of Section 530 because all medical directors and program di╜rectors have been treated as independent contractors, all tax forms filed by Plaintiff have been consistent with its treatment of the Physicians as independent contractors, and it had a reasonable basis for treating the Physicians as independent contractors.

Defendant contends that Plaintiff may not avail itself of Section 530 because ques╜tions of fact remain regarding whether doctors holding substantially similar posi╜tions to the Physicians were treated as employees. Defendant further contends that Plaintiff did not have a reasonable basis for treating the Physicians as inde╜pendent contractors.

"The determination of an individual's status as employee or independent con╜tractor for tax purposes is based on ▒the usual common law rules applicable in de╜termining the employer-employee relation╜ship.'" Smith v. United States, 068 F.2d 435, 436 (5th Cir.1978) (citing 26 U.S.C. ╖ 3121(d)(2)). However, even if an indi╜vidual was classified an employee under the common law test, Section 530 "shields a taxpayer who pays others for services from employment tax liability if the tax╜payer has consistently treated them as other-than-employees unless the taxpayer had no reasonable basis for doing so." 303 West 42nd St. Enterp., Inc., 181 F.3d at 274. Section 530 provides in relevant part:

(a) Termination of certain employment tax liability for periods before 1980.-

(1) In general.-If-

(A) for purposes of employment taxes, the taxpayer did not treat an individual as an employee for any period ending before January 1, 1980, and

(B) in the case of periods after Decem╜ber 31, 1978, all Federal tax returns (including information returns) required to be filed by the taxpayer with respect to such individual for such period are filed on a basis consistent with the tax╜payer's treatment of such individual as not being an employee, then, for pur╜poses of applying such taxes--for such period with respect to the taxpayer, the individual shall be deemed not to be an employee unless the taxpayer had no reasonable basis for not treating such individual as an employee.

Id. "Section 530 was created by Congress in 1978 to alleviate what was perceived as overly zealous pursuit and assessment of taxes and penalties against employers who had, in good faith, misclassified their em╜ployees as independent contractors. The statute is a relief provision and provides an alternative method by which to avoid em╜ployment tax liability where a taxpayer cannot establish his workers are or were independent contractors." Boles Truck╜ing, Inc. v. United States, 77 F.3d 236. 239 (8th Cir.1996) (citations omitted). Al╜though Section 530 is to be liberally con╜strued in favor of the taxpayer, Plaintiff has the burden of establishing that it meets the requirements of Section 530 by a preponderance of the evidence. Spring╜field v. United States, 88 F.3d 750, 753 (9th Cir.1996).

Therefore, in order to qualify for relief under Section 530, Plaintiff must establish that "(1) [Plaintiff] has not treated any individual as an employee who holds a substantially similar position as those clas╜sified as independent contractors (the [substantive] consistency requirement); (2) [Plaintiff] has filed all required federal tax returns on a basis consistent with [its] treatment of [the Physicians] as . . . inde╜pendent contractor[s] (the reporting con╜sistency requirement); and (3) [Plaintiff] had a reasonable basis for treating [the Physicians] as ... independent contrac╜tors] [ (the reasonable basis require╜ment) ]." Halfhill v. United States, 927 F.Supp. 171, 175 (W.D.Pa.1996).

1. ═ Substantive Consistency Require╜ment

In order for Plaintiff to avail itself of Section 530, it must establish that it "has [not] treated any individual holding a sub╜stantially similar position as an employee for purposes of the employment taxes . . . ." Id. at (a)(3).

Defendant acknowledges that all medical and program directors retained by Plain╜tiff were treated as independent contrac╜tors. However, Defendant contends that Plaintiff's employment of Dr. Hearn as a staff physician creates a factual question as to whether Plaintiff has met the substantive consistency requirement since 1993 because her position was substantial╜ly similar to that of a medical director. ⁴ According to Defendant, medical directors are responsible for administrative and con╜sultative oversight of the rehabilitation programs and for ensuring that the pro╜grams are of high quality. Their responsi╜bilities include 1) developing programs for patient care; 2) ensuring that the thera╜pists, staff doctors, and nurses are meeting their job standards; 3) sitting on various committees; 4) ensuring that the hospital maintains its accreditations; 5) presenting educational programs to the staff; 6) mar╜keting the hospital's services to the com╜munity; 7) developing hospital rules and by-laws; 8) resolving disputes; and 9) se╜lecting new or replacement equipment. Medical directors generally spend between 35 to 40 hours per week on these duties and earn approximately $100,000 to $125,000 per year.

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^4. As noted above, in its Amended Opposition to Plaintiff's Motion for Summary Judgment, Defendant agreed with Plaintiff that the substantive consistency requirement should be applied separately for each subsidiary.

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Defendant further contends that Dr. Hearn was required to spend 40 hours per week ⁵ on administrative duties which in╜cluded serving on committees, assisting with patient care policies, protocols, and quality assurance programs, and consult╜ing with administrative and medical staff on program development and the quality of care.

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^5. Defendant incorrectly states in its Memo╜randum in Opposition to Plaintiff's Motion for Summary Judgment that Dr. Hearn was re╜quired to spend 40 hours per week on administrative duties. Dr. Hearn's employment contract provides that she was required to spend only 40 hours per month on these duties.

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Plaintiff contends that the substantive consistency requirement is met. Accord╜ing to Plaintiff, Defendant conceded that this requirement was met when it admitted on October 5, 2000, that "[w]ith respect to Medical Directors, plaintiff has met the substantive consistency test for relief pur╜suant to Section 530 of the Revenue Act of 1978," and "[w]ith respect to Program Di╜rectors, plaintiff has met the substantive consistency test for relief pursuant to Sec╜tion 530 of the Revenue Act of 1978." See Plaintiff's First Request for Admissions Addressed to Defendant United States of America and Defendant's Response to Plaintiff's First Request for Admissions, ╤╤ 9 and 13.

Alternatively, Plaintiff contends that Dr. Hearn's position was not substantially sim╜ilar to that of a medical director. Accord╜ing to Plaintiff, Dr. Hearn was retained as a full-time attending physician. She was required to devote at least 130 hours per month to clinical care and at least 40 hours per month to administrative duties. Fur╜ther, Dr. Hearn's schedule was determined by the hospital and she was not to be employed elsewhere or maintain a private practice.

Plaintiff argues that, in contrast, medical directors devote less time to the hospital, their role is primarily consultative, they have their own private practices, and the hospital does not dictate the means or manner of their work.

For the reasons stated earlier, the Mag╜istrate Judge's Order granting Defendant's Second Motion for Leave to Withdraw or Amend Admission is affirmed, and Defen╜dant's admission of Request No. 9 is with╜drawn. Thus, the Court must determine whether the substantive consistency re╜quirement is met in light of this Ruling.

The Court finds that there is no genuine issue of material fact that Dr. Hearn's position was not substantially sim╜ilar to that of a medical director. Al╜though Dr. Hearn was required to devote time to administrative duties, some of which overlapped with the duties of medi╜cal directors, she spent an average of ten hours per week on these duties as com╜pared to the 35 to 40 hours per week spent by the medical directors. Further, the nature of the hospital's control over Dr. Hearn's schedule and duties was very dif╜ferent from that exercised over the medi╜cal directors.

For these reasons, together with Defen╜dant's acknowledgment that all medical and program directors retained by Plain╜tiff were treated as independent contractors, the Court concludes that the substan╜tive consistency requirement is met.

2. ═ Reporting Consistency Require╜ment

In order for Plaintiff to avail itself of Section 530, it must establish that it has filed all required federal tax returns on a basis consistent with its treatment of the Physicians as independent contractors. Defendant admits that Plaintiff has met this requirement. See Plaintiff's First Request for Admissions Addressed to De╜fendant United States of America and Defendant's Response to Plaintiff's First Request for Admissions, ╤╤ 7 and 11. Federal Rule of Civil Procedure 36(b) provides that any matter admitted is con╜clusively established. Therefore, no further analysis is warranted.

3. ═ Reasonable Basis Requirement

In order for Plaintiff to avail itself of Section 530, it must also establish that it had a reasonable basis for treating the Physicians as independent contractors. This reasonable basis requirement has been broadly interpreted in favor of tax╜payers. Lambert's Nursery & Landscaping v. United States, 894 F.2d 154, 157 (5th Cir.1990).

Section 530 provides three non-ex╜clusive statutory methods by which the taxpayer may establish a reasonable basis. Section 530 provides in relevant part:

(a) Termination of certain employment tax liability for periods before 1980.-

═════

═════ . . .

(2) Statutory Standards Providing One Method of Satisfying the Requirements of Paragraph (1).-For purposes of paragraph (1). - a taxpayer shall in any case be treated as having a reasonable basis for not treating an individual as an employee for a period if the taxpayer's treatment of such individual for such period was in reasonable reliance on any of the following:

(A) judicial precedent, published rul╜ings, technical advice with respect to the taxpayer, or a letter ruling to the taxpayer;

(B) a past Internal Revenue Service audit of the taxpayer in which there was no assessment attributable to the treatment (for employment tax pur╜poses) of the individuals holding posi╜tions substantially similar to the posi╜tion held by this individual: or

Id. at (a)(2). The taxpayer need only show that it has met one reasonable basis for treating the individual as an independent contractor in order to qualify for relief under Section 530. Hosp . Res. Pers., Inc. v. United States, 68 F.3d 421, 425 (11th Cir.1995).

Plaintiff asserts several reasonable bas╜es for treating the Physicians as inde╜pendent contractors, including: 1) its reasonable reliance on the for-profit re╜habilitation industry's treatment of medi╜cal and program directors as independent contractors; 2) its reasonable reliance on the advice of lawyers and accountants; 3) its reasonable treatment of the Physi╜cians as independent contractors under the traditional common law rules for classifying workers; 4) its strict compli╜ance with the prohibition on the corpo╜rate practice of medicine; and 5) its con╜tinual efforts to properly classify the Physicians.

Defendant asserts that Plaintiff cannot establish that it had a reasonable basis for treating the Physicians as independent contractors because: 1) Plaintiff cannot rely on generalized statements and its own practices in order to establish reliance on the for-profit rehabilitation industry's general practice; 2) Plaintiff's asserted reli╜ance on industry practice was not reason╜able; 3) Plaintiff cannot establish that it reasonably relied on the advice of lawyers and accountants; 4) the common law rules for classifying workers do not provide a reasonable basis for treating the Physi╜cians as independent contractors; 5) the corporate practice of medicine doctrine does not provide a reasonable basis for treating the Physicians as independent contractors; and 6) Plaintiff cannot evade liability by arguing that some of the Physicians were employed by their own profes╜sional corporations.

Plaintiff can satisfy the reasonable basis requirement by establishing that it reasonably relied on the advice of an attor╜ney in making the decision to treat the Physicians as independent contractors. See Queensgate Dental Family Practice, Inc. v. United States, Civ. A. Nos. 1:CV╜ 90-0918, 1:CV-90-1290 and 1:CV-90-1291, 1991 WL 260452 (M.D.Pa. Sept.5, 1991); Deja Vu Entm't Enterp. of Minn., Inc. v. United States, 1 F.Supp.2d 964 (D.Minn. 1998).

Plaintiff contends that it relied on the advice of counsel in determining how to treat the Physicians. According to Plain╜tiff, all of the contracts in question were reviewed and approved by legal personnel affiliated with CMS, including CMS's legal counsel, Deborah Myers Welsh ("Welsh"). Also, Plaintiff contends that CMS's man╜agement relied on the advice of both out╜side and in-house counsel in determining its subsidiaries' treatment of medical and program directors. According to Anthony F. Misitano ("Misitano"), a CMS executive who signed contracts with physicians on behalf of Plaintiff, the CMS legal depart╜ment would consult with local counsel in order to ensure that the contracts were consistent with state law. Thus, every con╜tract presented to him for signature was reviewed by both outside and in-house counsel and he relied completely on their views and recommendations.

Plaintiff also contends that Welsh fre╜quently consulted with outside counsel in drafting and approving contracts between CMS's subsidiaries and their physicians. Specifically, Plaintiff asserts that Welsh often consulted with Harvey Werblowsky ("Werblowsky"), an attorney with the law firm of McDermott, Will and Emery, which served as CMS's outside counsel. Welsh testified that she and Werblowsky discussed various IRS rulings, reviewed the "20 factors" common law test, and concluded that the medical and program directors clearly fell into the independent contractor category. Finally, Plaintiff con╜tends that Welsh relied on local counsel for advice on the treatment of medical and program directors, and these attorneys were often asked to prepare or review contracts in order to ensure their compli╜ance with state law.

Defendant contends that Plaintiff is not entitled to summary judgment because Plaintiff has not offered sufficient evidence regarding the information provided to these attorneys, the research undertaken by these attorneys, or the specific advice rendered by these attorneys.

In Queensgate, the president of Key╜stone Health Services telephoned the counsel of the Pennsylvania Dental Board to ascertain whether licensed dentists should be treated as employees or inde╜pendent contractors. Id. at *l. Keystone was advised by the attorney that it should treat the dentists as independent contrac╜tors. Id . at *2. The court found that based on this good faith inquiry, Keystone had a reasonable basis to believe that the den╜tists should have been treated as indepen╜dent contractors. Id. The court went on to state, "the inquiry is simply whether a taxpayer's beliefs and decisions regarding his treatment of individuals as either em╜ployees or independent contractors were reasonable and made in good faith." Id .

The Court finds that there is no genuine issue of material fact that Plaintiff and CMS reasonably, and in good faith, relied on the advice of in-house and outside counsel in making the decision to treat the Physicians as independent contractors.

C. Conclusion

The Court concludes that no genuine issues of fact exist and Plaintiff is entitled to relief under Section 530. First, all med╜ical and program directors retained by Plaintiff were treated as independent con╜tractors. Second, Plaintiff filed all re╜quired federal tax returns on a basis con╜sistent with its treatment of the Physicians as independent contractors. Finally, Plaintiff and CMS reasonably, and in good faith, relied on the advice of in-house and outside counsel in making the decision to treat the Physicians as independent con╜tractors. Accordingly, Plaintiff's Motion for Summary Judgment [Doc. No. 34] is GRANTED and Plaintiff is entitled to judgment against Defendant in the amount of $7,010.90.

CONCLUSION

For the foregoing reasons, Plaintiff's ap╜peal of the Magistrate Judge's Order granting Defendant's Second Motion for Leave to Withdraw or Amend Admission [Doc. No. 55] is DENIED and the Magis╜trate Judge's Order [Doc. No. 53] is AF╜FIRMED. Further, Plaintiff's Motion for Summary Judgment [Doc. No. 34] is GRANTED and Plaintiff is entitled to judgment against Defendant in the amount of $7,010.90.