Arriondo v. United States
| Decision Date | 22 July 2016 |
| Docket Number | CIVIL ACTION NO. H-14-2734 |
| Citation | 196 F.Supp.3d 708 |
| Parties | W. Raul ARRIONDO, Plaintiff, v. UNITED STATES of America, Defendant. |
| Court | U.S. District Court — Southern District of Texas |
Charles Wist, Wist Holland et al., Houston, TX, for Plaintiff.
Jonathan L. Blacker, Attorney at Law, Dallas, TX, for Defendant.
Plaintiff W. Raul Arriondo ("Plaintiff" or "Arriondo") was assessed a trust fund recovery penalty under Internal Revenue Code § 6672 for the fourth quarter of 2008 and the first quarter of 2009 (the "period in question"). Arriondo sued defendant the United States of America ("Defendant" or "United States"), seeking a refund for overpayment of taxes and to be found not liable as a responsible person under I.R.C. § 6672.1 Pending before the court is United States of America's Motion for Summary Judgment Against W. Raul Arriondo and Brief ("Motion for Summary Judgment") (Docket Entry No. 14). For the reasons stated below, the Motion for Summary Judgment will be granted, and this action will be dismissed.
Arriondo began working for American Steel Building Company, Inc. ("American Steel") in early 2007 and served as CEO, president, treasurer, and a director.2 He remained at American Steel until after the company filed for bankruptcy on June 5, 2009.3 American Steel was the wholly owned subsidiary of American Industrial Investment Corporation, an Employee Stock Ownership Plan Company.4 Arriondo received an annual salary but was not an owner of American Steel or American Industrial Investment Corporation.5
Arriondo ran the business along with other employees and was part of the group that handled the day-to-day operations of the company, but he was focused on increasing sales.6 Arriondo met with company executives weekly and was informed about operations.7 At these weekly meetings, Arriondo always asked the financial director or controller if there was enough money to buy steel and to cover employee salaries.8
Arriondo had authority to hire and fire employees, the authority to enter into contracts on behalf of American Steel, and input into employee salary amounts.9 Arriondo was always an authorized check signer at American Steel.10 Arriondo had access to the company's books and records.11 American Steel received monthly bank statements, and "[Arriondo] could therefore see how much money American Steel was receiving and spending after he knew of the unpaid taxes."12 Arriondo also had the authority to purchase and sell assets for American Steel during the period in question.13
American Steel faced financial challenges due to the economic downturn in 2008.14 Arriondo was aware of that American Steel's finances were in trouble and that the company "always had a challenge" financially and "struggl [ed] with cash."15 Additionally, the prior CEO of American Steel, John Garland, had cashed out his ownership upon departure, leaving American Steel with a large debt secured by company assets.16
In April of 2009 the State of Texas sent American Steel a notice of levy for unpaid excise tax.17 Arriondo was aware of the "issues with the state controllers" towards the end of 2008.18
Latiolais, a certified public account and American Steel's director of finance, assured him that the state tax issue was a timing issue related to a tax return, and she was able to work out a payment schedule fairly easily.20 Arriondo did not investigate further or inquire about other potential tax issues.21
Arriondo signed documents borrowing hundreds of thousands of dollars for American Steel on June 2, 2008, shortly before the period in question began.22 At one point (Arriondo thought it was March or April of 2009), Arriondo also advanced the company money to cover payroll, but he denies that he knew the financial situation was so bleak that American Steel could not survive.23
Throughout the period in question Arriondo was aware of the requirements to withhold and pay payroll taxes and to pay taxes quarterly.24 American Steel paid payroll taxes without incident for over a year after Arriondo began working there.25 However, American Steel's quarterly federal tax return forms (the "Forms 941") for the fourth quarter of 2008 and the first quarter of 2009 show taxes were still due when the returns were filed, with partial tax deposits for the fourth quarter of 2008 and no tax deposits for the first quarter of 2009.26
Latiolais served as American Steel's director of finance from early 2008 until abruptly leaving in early 2009.27 Latiolais prepared, signed, and filed the tax return for the fourth quarter of 2008.28 She prepared the return for the first quarter of 2009, but left the company before filing it.29 Latiolais did not present Arriondo with the returns for his review, and had not done so in the past.30 Arriondo agreed that it was ultimately his responsibility to ensure payroll taxes owed were paid, that he did not follow up with Latiolais regarding payment of employment taxes, did not ask to see payroll tax deposits, and did not ask to see any evidence that the taxes were being paid, although he could have.31 Arriondo relied on Latiolais and the "sufficient, sophisticated" procedures that had been in place and effective since before he began working at American Steel, even after learning of the delinquent state excise taxes.32
On May 18, 2009, Steve Dawson ("Dawson"), who began acting as controller after Latiolais's departure, informed Arriondo that Latiolais had been using employee payroll tax trust fund money to pay creditors rather than the IRS and had been writing checks but not releasing them.33 That was the first time Arriondo learned of the unpaid taxes.34 On the same day, Dawson told Arriondo that American Steel did not have enough money to pay the taxes owed to the IRS.35 Latiolais had lied to Arriondo about American Steel's finances and ceased paying tax withholdings and child-support withholdings while assuring Arriondo that the company had enough money to pay employees.36 Latiolais had instructed her employees not to pay federal withholding taxes to the IRS.37
When he learned of the unpaid payroll taxes, Arriondo began shutting down the company and laying off employees.38 Arriondo met with a bankruptcy attorney approximately one week after learning of the unpaid taxes.39 The bankruptcy attorney told Arriondo to complete the shutdown of the company and to gather the necessary information for bankruptcy.40 American Steel filed for bankruptcy protection on June 5, 2009, eighteen days after Dawson informed Arriondo of the unpaid taxes.41
The United States asserts that Arriondo approved other payments and checks to employees and other creditors after he learned of the unpaid taxes.42 Arriondo received compensation from American Steel after he learned of the unpaid taxes because he continued to perform necessary functions to prepare the company for bankruptcy on the advice of the bankruptcy attorney.43 The bankruptcy attorney told him he was entitled to be paid for his services in shutting down the company because he was not an owner.44
Arriondo admits that he had the authority to decide which creditors to pay, including paying the employee salaries that were paid after he learned of the unpaid taxes.45 Arriondo admits that he approved payments and checks to "employees and government entities of American Steel" after he knew American Steel had unpaid payroll taxes.46 Two payroll payments were made after Arriondo learned of the unpaid taxes (all taxes were paid on these payroll disbursements), and he and Steve Dawson remained on payroll until the end of June.47 Weekly employees were paid one week in arrears on the following Friday. They were paid on May 22nd for work that had previously been performed.48 The final payroll was on May 29, 2009, but many of those checks bounced.49
Arriondo denies that he decided to pay other creditors before the IRS.50 The United States relies on a sampling of cancelled checks written after the period in question,51 American Steel's A/P Check Register for 2008 and 2009,52 Arriondo's deposition testimony, and the bankruptcy filings.53 Specifically, the United States points to a $30,000 payment to First Steel Source LLC on May 27, 2009, a $26,355 payment to North Shore Supply Company on May 28, 2009, and $7,500 in two June 2009 payments to American Steel's bankruptcy counsel.54 Arriondo acknowledges that the first two payments appear on the bankruptcy schedule, but argues that the schedule contains mistakes because these payments are not reflected on the company's bank statements for the month.55 He also disputes that he authorized payments to American Steel's bankruptcy counsel in June of 2009.56 Arriondo and Dawson stated that the company made a $9,000 payment deposit for new steel in an attempt to complete a large order to raise money for the taxes, but Arriondo asserts that this was not a payment to a creditor.57 Rather than fulfilling the order, the supplier applied the $9,000 to American Steel's past due payments.58 Discussing his actions after he discovered the unpaid payroll taxes, Arriondo testified:
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