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Судебные дела / Зарубежная практика  / UNITED STATES of America, Plaintiff, v. WEST PRODUCTIONS, LTD., West Productions Limited Partnership, Diane Corto, Francine Lefrak, Seat of the Pants Productions, Inc., and Diana Corto, Defendants., United States District Court, S.D. New York., 168 F.Supp.2d 84, No. 95 Civ. 1424(CSH)., April 19, 2001

UNITED STATES of America, Plaintiff, v. WEST PRODUCTIONS, LTD., West Productions Limited Partnership, Diane Corto, Francine Lefrak, Seat of the Pants Productions, Inc., and Diana Corto, Defendants., United States District Court, S.D. New York., 168 F.Supp.2d 84, No. 95 Civ. 1424(CSH)., April 19, 2001


UNITED STATES of America, Plaintiff, v. WEST PRODUCTIONS, LTD., West Productions Limited Partnership, Diane Corto, Francine Lefrak, Seat of the Pants Productions, Inc., and Diana Corto, Defendants.

United States District Court, S.D. New York.

168 F.Supp.2d 84

No. 95 Civ. 1424(CSH).

April 19, 2001.

Kathleen M. Riedy, Otto G. Obermaier, Asst. U.S. Atty., New York City, for Plain╜tiff.

Alan Shweky, New York, NY, James B. Lewis, Benjamin N. Cardozo School of Law, Yeshiva Univ., New York City, for Defendants.


HAIGHT, Senior District Judge.

In this action brought under the revenue laws, plaintiff United States of America ("the Government") sues one of the indi╜vidual defendants, Diana Corto, to recover unpaid federal withholding taxes and un╜employment taxes assessed by the Inter╜nal Revenue Service ("IRS") against an entity the Government calls "West Produc╜tions." The parties now cross-move for summary judgment. 1


1. The caption to the Government's complaint lists "West Productions, Ltd." and "West Pro╜ductions Limited Partnership" among the parties defendant. The declaration of Arnold Rifkin, an IRS agent, in support of the Gov╜ernment's motion simply refers to unpaid tax assessments against "West Productions." These discrepancies in the entity's name do not appear to be significant. In this Opinion I will refer to the entity as "West Produc╜tions."



In 1984 defendant Diana Corto, whose professional experience is as a singer and performer, began to explore the possibility of producing a nationwide tour of West Side Story, the musical play to which Ar╜thur Laurents, Leonard Bernstein, Ste╜phen Sondheim, and Jerome Robbins (col╜lectively "the Authors") had contributed their creative talents. To that end, "[d]ur╜ing April 1985 Corto filed a d/b/a certifi╜cate under the name West Productions." 2 By July 1985, Corto had obtained from the Authors "second-class rights to the pro╜duction" of West Side Story, " i.e., rights limited to performance in smaller regional theaters." 3 When Corto attempted to book the production at the Kennedy Cen╜ter in Washington, D.C., the Authors, act╜ing through their representative, insisted that Corto obtain a first-class license, which in turn required Corto to associate herself with one Francine Lefrak. On Au╜gust 8, 1985, Corto and Lefrak entered into a license agreement with the Authors to produce West Side Story "on the first╜class stage in the United States and Cana╜da." Corto and Lefrak referred to them╜selves in that license agreement as "Co╜Producers." 4


2. Crossclaim of defendant Corto against co╜defendant Francine LeFrak, filed in the cap╜tioned action, at ╤ 8.

3. I have quoted from Judge McKenna's deci╜sion following a bench trial in West Produc╜tions Ltd. et ano. v. Serino, Coyne & Nappi, Inc. at ano., 88 Civ. 7220(LMM) (S.D.N.Y., decided April 10, 1992 (not reported), at slip op. 3 and fn. 2). I will refer to that decision in text as Serino.

4. The factual recitation in this paragraph of text is derived from Serino at slip op. 2-3. These facts are not disputed on the present cross-motions. The quotation from the li╜cense agreement is taken from excerpts from that document which form Ex. C to Corto's affidavit in support of her cross-motion.


The production of West Side Story opened at the Kennedy Center in early September 1985 and closed on September 21, never to reopen. During that period the association between Corto and Lefrak dissolved amid mutually rancorous ex╜changes. While West Side Story had a short run at the Kennedy Center, the sub╜sequent run of the lawsuits and arbitra╜tions generated by these events rivals that of The Fantasticks.

In the case at bar, the Government seeks to recover federal taxes which the IRS says were incurred as the result of the labors devoted to the West Side Story production. Specifically, IRS agent Rif╜kin's declaration recites that:

(a) On December 1, 1986, the IRS made an assessment in the amount of $166,012.92 against West Productions for unpaid withholding taxes for the quarter ended September 30, 1985. The IRS later abated $8,115.32 of that assessment, leav╜ing a total of $157,897.69.

(b) On May 30, 1988, the IRS made an assessment in the amount of $14,972.97 against West Productions for unpaid feder╜al employment taxes for the year ended December 31, 1985.

(c) On January 30, 1989, the IRS made an additional assessment of $6,021.84 against West Productions for unpaid feder╜al employment taxes for the year ended December 31, 1985.

Corto does not deny that these assess╜ments were made and remain unpaid; nor has she ever challenged their amounts.

The Government's complaint to recover these assessments named a number of de╜fendants in addition to Corto, including Francine Lefrak. This Court has had occa╜sion to write a number of opinions in the case, prompted primarily by Corto's ef╜forts to use the Government's tax suit as a vehicle to litigate or relitigate her several contract and tort claims against Lefrak. 5 Those efforts failed, and the case ends as it began, an action by the Government to recover unpaid taxes.


5. The Court's prior opinions in this case are reported at 1996 WL 420308 (S.D.N.Y., July 26, 1996); 1997 WL 16646 (S.D.N.Y., January 17, 1997); 1997 WL 45517 (S.D.N.Y., Febru╜ary 4, 1997); 1997 WL 668210 (S.D.N.Y., October 27, 1997); and 1999 WL 1125095 (S.D.N.Y., December 8, 1999).


Corto is the sole remaining defendant. Some time ago the Government settled with Lefrak and agreed to dismiss its tax claim against her. 6 At the same time the Government offered to dismiss its tax claim against Corto without requiring any payment by her, if Corto would make doc╜umentary disclosure of her then-existing financial situation. Corto declined to make that disclosure when the Govern╜ment first requested it. Having retained new counsel, in May, 2000 Corto forward╜ed the requested financial disclosure to the Assistant United States Attorney in charge of the case, and agreed to be ques╜tioned about the matter. At that time, however, the Government took the position that a payment by Corto was required to settle the case, which the Government was no longer willing to discontinue against Corto based solely on her financial disclo╜sure.


6. The Government's claims against the West Productions, the defendant partnership, and Seat of the Pants Productions, Inc., a corpo╜rate defendant, have not been pressed.


The Court has no role to play in re╜sponse to that hardening of the Govern╜mental heart. That is so even if, as Cor╜to's counsel states in a letter to the Court dated April 16, 2001 at 1, the financial disclosure Corto made "showed that Ms. Corto had neither the assets nor income to make any payments to the Government." The Executive Branch of Government, here the Department of Justice acting through the United States Attorney for this District, has the discretionary authori╜ty to commence actions on behalf of the Government and thereafter agree to settle them or decline to do so. I must perforce decide the parties' cross-motions for sum╜mary judgment.

The Government bases its motion for summary judgment on the asserted fact that at the pertinent times Corto was a general partner of West Productions, and the proposition of law that, as a general partner, Corto is liable for the tax assess╜ments against West Productions. For that proposition the Government relies upon the New York Partnership Law.

On her cross-motion Corto asserts that at the times these taxes accrued she was not, a general partner of West Productions, because Lefrak had as a practical matter ousted her from that position; nor was she a "responsible person" of West Produc╜tions, a phrase derived from ╖ 6672 of the Internal Revenue Code, 26 U.S.C. ╖ 6672, which Corto contends constitutes the gov╜erning law in the case.

On the factual dispute concerning Cor╜to's status as a partner of West Produc╜tions, the Government responds by con╜tending that Corto is judicially estopped from denying that status. The Govern╜ment bases its invocation of the judicial estoppel doctrine upon Corto's litigation conduct in the Serino case before Judge McKenna, which must now be examined in some detail.

Judge McKenna's opinion dated April 10, 1992 in Serino constitutes his findings of fact and conclusions of law following a bench trial before him. It appears that in August 1985, in furtherance of efforts to produce West Side Story, Corto was in╜strumental in the making of a television commercial for the production. Serino, slip op. at 8. In 1988 Corto applied for and received a certificate of registration of copyright, effective as of August 20, 1987, in the commercial. Id. at 1. The certificate of registration stated the author of the commercial to be "Diana Corto individually and dba West Productions, WEST SIDE STORY NAT'L. TOUR-1985." Id .

In 1988 Corto, represented by counsel, brought the Serino action against an ad╜vertising company and a theatrical produc╜tion company, alleging that they had in╜fringed her copyright in the commercial. Corto identified the plaintiffs in the caption of her complaint as "WEST PRODUCTIONS LTD. and DIANA CORTO, as General Partner of West Productions Ltd. " (emphasis added).

These designations were not mere for╜malities. The defendants challenged the Serino plaintiffs' standing to assert a copy╜right infringement claim. Corto and her counsel persuaded Judge McKenna that plaintiffs had standing precisely because Corto was a partner of West Productions at the pertinent times. Judge McKenna reasoned that "Corto and LeFrak formed, at the least, a general partnership," and that "LeFrak's withdrawal, while it could dissolve the partnership, did not terminate it. LeFrak's withdrawal, therefore, left Corto as the sole remaining partner of an existing partnership, a fact which the par╜ties have, in effect, stipulated. " Serino, slip op. at 6 (emphasis added). Judge McKenna accepted Corto's self-proclaimed status as a partner of West Productions, and in consequence upheld her standing to sue for copyright infringement:

[T]he Court finds and concludes that, at the time of the infringement alleged and at the time of the registration of the claim to copyright in the commercial, Corto was the sole remaining partner of West Productions Ltd., of which LeFrak had been, but was no longer, a partner, and that Corto has standing to bring the present action.

Id. at 7. Moreover, at the end of his opin╜ion Judge McKenna granted the plaintiffs an interlocutory judgment against one of the defendants "on their claim for copy╜right infringement."


A. Standard of Review

The government and Corto cross-move for summary judgment. The standard of review is the same for both. Summary judgment is appropriate where "there is no genuine issue as to any material fact and . . . the moving party is entitled to a judgment as a matter of law," Fed. R.Civ.P. 56(c), i.e., "[w]here the record taken as a whole could not lead a rational trier of the fact to find for the non-moving party." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). An issue of fact is "material" for these pur╜poses if it "might affect the outcome of the suit under the governing law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). An issue of fact is "genuine" if "the evidence is such that a reasonable jury could return a verdict for the non-moving party." Id.

If these familiar principles were applied without further considerations to the case at bar, it requires no discussion to demon╜strate that Corto's disputed status as a partner of West Productions would pre╜clude summary judgment for either party. A determination of whether or not Corto was a partner of West Productions at the pertinent times would require an evalua╜tion of the credibility of Corto and Lefrak; the accounts Corto and Lefrak have previ╜ously given of the genesis, abbreviated life, and demise of their West Side Story asso╜ciation are totally irreconcilable, thereby demonstrating "a genuine issue" as to "a material fact." However, the case is com╜plicated by a further consideration: the possible effect upon this factual issue of the doctrine of judicial estoppel, upon which the Government relies and to which I now turn.

B. Judicial Estoppel

Generally speaking, "[t]he doc╜trine of judicial estoppel prevents a party from asserting a factual position in a legal proceeding that is contrary to a position previously taken by him in a prior legal proceeding." Bates v. Long Island Rail╜road Co., 997 F.2d 1028, 1037 (2d Cir.), cert. denied, 510 U.S. 992, 114 S.Ct. 550, 126 L.Ed.2d 452 (1993). In Bates the Sec╜ond Circuit, after reviewing earlier author╜ities, said that "judicial estoppel protects the sanctity of the oath and the integrity of the judicial process." 997 F.2d at 1037. Bates identified "two distinct objectives behind judicial estoppel, both of which seek to protect the judicial system. First, the doctrine seeks to preserve the sanctity of the oath by demanding absolute truth and consistency in all sworn positions .... Second, the doctrine seeks to protect judi╜cial integrity by avoiding the risk of incon╜sistent results in two proceedings." Id. at 1038 (footnote omitted). Continuing, the Second Circuit said that "[b]y focusing on the rationales behind judicial estoppel, the elements of the doctrine become clear," and then defined those elements: "First, the party against whom the estoppel is asserted must have argued an inconsistent position in a prior, proceeding; and second, the prior inconsistent position must have been adopted by the court in some man╜ner." Id. (footnote omitted).

Subsequent decisions demonstrate the continuing vitality of the judicial estoppel doctrine in the Second Circuit. See, e.g., Wight v. Bankamerica Corp., 219 F.3d 79, 90-91 (2d Cir.2000); Bridgeway Corp. v. Citibank, 201 F.3d 134, 141 (2d Cir.2000); Mitchell v. Washingtonville Central School District, 190 F.3d 1, 6 (2d Cir.1999); Si mon v. Safelite Glass Corp., 128 F.3d 68, 71-73 (2d Cir.1997); Maharaj v. Bankam╜erica Corp., 128 F.3d 94, 98 (2d Cir.1997); and AXA Marine and Aviation Insurance (UK) Limited v. Seajet Industries, Inc., 84 F.3d 622, 628 (2d Cir.1996). Since the applicability of the now clearly defined ele╜ments of the doctrine to a given case is fact-specific, it is not surprising to find the Court of Appeals applying the doctrine in some cases and declining to do so in others. Thus the Second Circuit refused to apply the doctrine in Wight, 219 F.3d at 91 (the party's "allegedly inconsistent posi╜tion" was not "adopted by the court in some manner"); Bridgeway, 201 F.3d at 141 ("we do not view Citibanks's voluntary participation in Liberian litigation, even as a plaintiff, as clearly contradictory to its present position"); Maharaj, 128 F.3d at 98 ("We are persuaded that there is no clear inconsistency between plaintiff's present and former positions"); and AXA Marine, 84 F.3d at 628 ("By stating that the coverage had not been declined, 'to date,' the attorneys expressly avoided com╜mitting Underwriters to any future course. Thus they were not estopped from later denying coverage."), but applied the doc╜trine in Mitchell, 190 F.3d at 7 (where plaintiff had previously applied for and received SSI benefits by claiming an ina╜bility to work and subsequently asserted in an ADA action that he was able to work, "the district court correctly held that Mitchell was estopped from asserting in the present action that he was capable of performing work that required him to stand or walk") and Simon , 128 F.3d at 69 (comparable circumstances in the context of a subsequent ADEA claim; the district court had characterized the estopped party as "the paradigmatic judicial estoppel plaintiff'). Simon also notes that "[i)f the statements can be reconciled there is no occasion to apply an estoppel. The same may be said where the first statement was the result of a good faith mistake, or an unintentional error." 128 F.3d at 73 (citations omitted).

In the case at bar, I conclude with╜out difficulty that Corto is another "para╜digmatic judicial estoppel" party. Both elements the Second Circuit articulated in Bates are clearly satisfied. In the Serino case Corto forcefully told Judge McKenna that she was a general partner of West Productions; in this case she tells this Court with equal force that she was not. If these are not "clearly contradictory statements," it is hard to imagine what would be.

The second Bates element is also satis╜fied. Judge McKenna "adopted" Corto's claim of partnership in the most striking manner possible: he based his conclusion that Corto had standing to claim copyright infringement upon her status as a partner, and then gave Corto a judgment on that claim. In that regard this case differs from Bates, where the Second Circuit held that a settlement of the earlier action prior to verdict and judgment did not satisfy the second element: "A settlement neither re╜quires nor implies any judicial endorse╜ment of either party's claims or theories, and thus a settlement does not provide the prior success necessary for judicial estop╜pel." 997 F.2d at 1038 (citations and inter╜nal quotation marks omitted).

Corto addresses the judicial estoppel doctrine in her brief, but it is difficult to follow her argument. The brief introduces the topic with the statement that "[t1he issue of whether or not Corto was ever a partner was, and is, simply not Corto's to determine," observes that "partnership status is determined by applying legal principles to the particular facts of each case," and contends that "Diana Corto was simply not competent to make the determi╜nation as to her status." Brief at 7-8. This is followed by a discernible shifting of gears. Corto's brief goes on to say that "judicial estoppel applies only to a factual position advanced by a party in a prior case," and then contends: "Any prior statement by Corto as to her status as a partner is not a factual position advanced by her. Rather, in applying the relevant facts to the established principles for de╜termining partnership status, the conclu╜sion is inescapable that the relationship between Lefrak and Corto never achieved partnership status." Brief at 8.

While her brief is not entirely clear, Corto may be making two contentions: the issue of partnership status vel non is a mixed question of fact and law, which Cor╜to was not competent to address before Judge McKenna and to which judicial es╜toppel does not apply; and her self-de╜clared status as a general partner of West Productions was wrong on the facts. But these contentions, viewed separately or to╜gether, cannot avoid the application of the judicial estoppel doctrine as delineated by Second Circuit caselaw.

While the cases decided by the New York courts play a part in determin╜ing an individual's partnership status un╜der the New York Partnership Law, it is counterintuitive, in the context of the ob╜jectives served by the judicial estoppel doctrine, to view the question as anything other than one of fact. 7 Corto's individual competence to speak to the issue is entire╜ly beside the point, at least in a case where she was represented by counsel. 8 In that circumstance, Corto cannot be heard to say that her claim of partnership status in Serino was the result of "a good faith mistake" or "an unintentional error," Si mon, 128 F.3d at 73. Quite the contrary: Corto's claim of partnership status was advanced by her counsel in Serino to strengthen her position in the litigation, just as her present counsel's denial of that status is advanced to strengthen her posi╜tion in the case at bar. 9


7. I have in mind particularly the second ob╜jective of judicial estoppel articulated in Bates, "to protect judicial integrity by avoid╜ing the risk of inconsistent results in two proceedings." 997 F.2d at 1038. Corto can╜not be permitted to persuade Judge McKenna that she was a general partner in West Pro╜ductions and then attempt to persuade this Court that she was not.

8. The docket sheet in the Serino case indicates that Corto was represented by counsel when the complaint was filed and during the trial before Judge McKenna.

9. I do not mean to suggest by that analysis in text that either counsel acted inappropriately in making these contentions during these two proceedings.


As for the apparent argument that Cor╜to's claim of partnership status in Serino was unsupported by the facts, that misses the mark in a judicial estoppel analysis. The decisive point is that Corto made a prior inconsistent claim in litigation which the court adopted.

For these reasons, I conclude that in the case at bar Corto is judicially estopped from denying that she was a general part╜ner of West Productions at the times when the IRS assessed tax indebtedness against that entity.

C. The Governing Law

Since the Second Circuit cases on judi╜cial estoppel compel the conclusion that Corto was a general partner of West Pro╜ductions at the pertinent times, her liabili╜ty for the IRS assessments against that entity necessarily follows.

The Government relies upon the New York Partnership Law, 38 McKin╜ney's Consol. Laws of N.Y. (West 1988 and 1999 Supp.). Corto does not challenge the applicability of the New York statute (Corto and Lefrak are both residents of the state); nor does she challenge the statute's effect in making her liable as a West Production partner for that entity's debts to the IRS, which in any event fol╜lows from the plain wording of the stat╜ute. 10


10. ╖ 24 of the New York Partnership Law provides that "[w]here, by any wrongful act or omission of any partner acting in the ordi╜nary course of the partnership, ... loss or injury is caused to any person, not being a partner in the partnership, or any penalty is incurred," the partnership is liable therefor. The nature of a partner's liability is covered by ╖ 26, which provides in ╖ 26(1) that all partners are liable jointly and severally "for anything chargeable to the partnership" un╜der ╖╖ 24 and 25, and in ╖ 26(2) that all partners are jointly liable "for all other debts and obligations of the partnership . . . "


Instead, Corto contends that the IRS's efforts to recover these taxes should be restricted to a proceeding under ╖ 6672 of the Internal Revenue Code, 26 U.S.C. ╖ 6672, which provides in ╖ 6672(a) that "[a]ny 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, ... 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 for and paid over." Such an individual is the "responsible person" in the tax collector's vernacular; and Corto apparently thinks that the Government would have a harder time proving that she was a "responsible person" at West Pro╜ductions than a partner of it.

I need not pursue whatever differ╜ences of proof may exist between these two vehicles for recovery because it is well established that the Internal Revenue Ser╜vice may choose between them, as it has done in the case at bar. A leading trea╜tise, 14 Mertens, The Law of Federal Income Taxation (West 1997-200), states at ╖ 55:109:

When a partnership fails to collect and pay over withholding taxes, the Service may either impose a penalty on a specif╜ic "responsible person" under Section 6672 or collect the withholding taxes from one or more general partners un╜der the applicable state partnership laws. The two remedies are not mutual╜ly exclusive and no court has ruled that Congress intended to preempt state law by enacting Section 6672.

(footnote and collected cases omitted). Corto points out that the Second Circuit does not appear to have squarely ad╜dressed the point, but offers no persuasive reasons why this Court should not follow the uniformly declared rule. She is ac╜cordingly liable under the New York Part╜nership Law for these assessments in her capacity as a general partner of West Pro╜ductions.


For the foregoing reasons, the Govern╜ment's motion for summary judgment is granted and Corto's cross-motion for sum╜mary judgment is denied.

Counsel for the Government are direct╜ed to settle an Order and Judgment con╜sistent with this Opinion before April 30, 2001 on seven (7) days' notice.



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