Athar v. State Bd. of Equal. (In re Athar)
| Decision Date | 27 February 2014 |
| Docket Number | Adv No: 1:12-ap-01038-MT,Case No.: 1:11-bk-23947-MT |
| Court | U.S. Bankruptcy Court — Central District of California |
| Parties | In re: Sayeda H Athar Debtor(s). Sayeda H Athar Plaintiff(s), v. State Board Of Equalization Defendant(s). |
This matter arises out of the dispute between discharged Chapter 7 debtor and Plaintiff, Sayeda Athar ("Athar"), and Defendant tax creditor State Board of Equalization ("BOE") on the issue of whether the Chapter 7 discharge in the main proceeding was effective against her sales tax liabilities arising out of the operation of a store known as "Quick Mart," or whether those tax obligations were excepted from discharge pursuant to 11 U.S.C. § 523(a).
The matter has been tried and submitted for decision. At trial, Athar testified and BOE offered the testimony of Ross Masaki ("Masaki"). The central issue during trial was whether Athar was legally a general partner of Quick Mart.
On December 2, 2011, Athar filed for Chapter 7 Bankruptcy. See Bankruptcy Case no. 1:11-bk-23947-MT, Docket no. 1. Athar received discharge on March 14, 2012. On January 31, 2012, Athar filed this adversary against Defendant BOE seeking declaratory relief as to whether the tax debt had been discharged. See Adversary Proceeding no. 1:12-ap-01038-MT, Docket no. 1. The adversary alleged there was an actual controversy over whether Athar was liable for Quick Mart sales taxes collected and not turned over and whether the taxes were non-dischargeable. Athar claimed that she did not owe the taxes because she never collected any sales tax and the taxes measured on income were dischargeable under 11 U.S.C § 507. On May 16, 2012, BOE filed its answer to the adversary complaint claiming that the taxes were owed and nondischargeable. See Id. Docket no. 8. The Revised Joint Trial Order ("Pre-trial Order") was filed January 22, 2013. See Id. Docket no. 16. Originally, the trial was scheduled to be heard on November 21, 2013, before the Honorable William V. Altenberger. However, the trial date was vacated and set for January 14, 2014 before the Honorable Maureen Tighe. See Id. Docket no. 27 and 29. The trial was held on January 14, 2014.
On July 18, 2001, Athar and her father, Mustafizur Rehman ("Rehman"), signed a written Form BOE- 400 Application for a California Retail Seller's Permit ("BOE Application") for the operation of a convenience store, "Quick Mart". See Trial Exhibit 1 (Application for Sellers Permit and Registration as a Retailer). Under the heading of "Ownership and Organization changes", Quick Mart's application indicated that Athar was a partner in Quick Mart. Id. Quick Mart was a convenience store engaged in the business of selling food and beverages.
On July 19, 2001, a Fictitious Business Name Statement was recorded in Los Angeles County Official Records over the signatures of Athar and her father, which stated that the "following persons . . . are . . . doing business as: Quick Mart." See Trial Exhibit 2 (Fictitious Name Statement). The registrants listed were Athar and her father. Id.
On August 30, 2001, Athar was listed as the primary owner of Quick Mart on the beer and wine license for the California Department of Alcohol Beverage Control ("ABC"). See Trial Exhibit 3 (California Department of Alcohol Beverage Control License Query System Summary).
On or about December 18, 2009, BOE issued Notices of Determination of sales tax liability ("NOD #1") to Athar, as well as to Quick Mart and her father, Rehman. See Trial Exhibit 4 (State of California Board of Equalization Notice). BOE determined that $86,430.69 in sales taxes was owed as a result of the operation of Quick Mart. Id.
On June 2, 2011, Athar's father, Rehman, passed away. On August 16, 2011, Athar signed over Power of Attorney to Aminul Islam ("Islam") to represent Quick Mart and herself before BOE. See Exhibit 8 (State Board of Equalization Power of Attorney).
On December 2, 2011, Athar listed the California beer and wine license as her own property on her Chapter 7 schedules. See Trial Exhibit 10 (Voluntary Petition) pg. 14, 22, and 26.
On February 23, 2013, the BOE issued and served a written Decision and Recommendation that found that Athar was a general partner in Quick Mart. The BOE issued a Notice of Redetermination (the "NOR") to Athar as a partner on the earlier 2005 - 2008 audit liability on October 15, 2012. That assessment became final on November 14, 2012.
Athar formally closed out the BOE permit on March 12, 2012, with an effective closing date of June 30, 2011. See Trial Exhibit 13 (Notice of Closeout for Sellers Permit). Athar failed to notify or advise the State Board of Equalization that she was not a partner in Quick Mart, until after Quick Mart went out of business.
At the trial on direct examination, Athar testified that she did not know that the Form BOE application she signed listed her as a "Partner". She testified that she had not read the designation of "Partner" that appeared next to her signature on the BOE Application at the time she signed the Application. Athar claimed her father needed her to sign the documents because she had better credit and he needed her to sign to get a business license.
Throughout the trial, Athar testified that she did not have the authority or discretion as a partner to determine what obligations Quick Mart would pay or whether or not Quick Mart's State Board of Equalization sales tax obligations would be paid. She believed she had no duty or responsibility as a partner to act for Quick Mart with respect to the filing of quarterly tax returns during the relevant period. She did not willfully fail to pay or cause to be remitted any Quick Mart collected taxes due to the State Board of Equalization.
On cross-examination, she testified that the sequence of events was as follows: (1) Her father talked to her about needing her signature on the document; (2) he then filled out the document; and (3) Athar then signed the original of the document. Athar testified she did this because she knew he needed it for his business and she always wants to help her family.
Athar also testified that she could not recall reading any of the statements and schedules that accompanied her Chapter 7 Petition when it was filed with the Court. In fact, she could not recall reading any of the documents among the Trial Exhibits that bear her signature, although she admitted signing each of them. With the exception of the bankruptcy filings, Athar's testimony was that she signed each of Trial Exhibits that bear her signature because she believed her signing them would help her family.
Athar testified in English at trial. She admitted that she can read and write in English. She once worked as a store employee for Sears, and she successfully passed her California DMV written examination for her driver's license in English on the third try. While English clearly was a second language, her English was adequate, and she appeared to understand the questions asked. Her answers were responsive except when the conclusions to be drawn from those answers were not consistent with her theory of liability. She was credible that she was notinvolved in the day to day running of the business and that she followed the advice of others to do a favor for her family.
The BOE offered the testimony of Ross Masaki ("Masaki"). The California State Board of Equalization has employed Masaki for the past 15 years. His current position is a Business Tax Compliance Specialist working in the Special Operations Bankruptcy Unit. Masaki monitors bankruptcy cases filed by BOE permit holders. He reviews their bankruptcy cases to ensure compliance with BOE regulations and that the state interests are taken care of. Masaki was familiar with BOE procedures for issuing licenses.
Masaki testified that once BOE received the Quick Mart application, it processed the application as a general partnership and issued a sellers permit that is required to do business. The BOE relied on Athar's representations that she was a partner of Quick Mart in issuing the license because the BOE treats all information in an application as true and correct and relies on the statements in the application when issuing permits. Masaki testified that the BOE relied that the individuals listed on the BOE application were partners, doing business as Quick Mart and running the business of selling beer and wine as a general grocer. He said the BOE permit was categorized as a general partnership and Athar and her father listed as partners. Masaki claimed that BOE relies on the "partner" designation to determine who is liable for the tax debt and who is responsible for filing tax returns.
During trial, BOE presented evidence that as of the date of Rehman's death, Athar:
See Trial Exhibits 7-14 and BOE's Trial Brief pg. 7.
According to the Pre-Trial Order there were seven legal issues to be litigated at trial. See Adversary Docket no. 16. During trial,...
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