Bean v. U.S., Civil Action No. H-07-461.

• Decision Date: 14 January 2009
• Docket Number: Civil Action No. H-07-461.
• Citation: 649 F.Supp.2d 599
• Parties: Lonnie J. BEAN, Jr., Plaintiff, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — Southern District of Texas

649 F.Supp.2d 599

Lonnie J. BEAN, Jr., Plaintiff, v. UNITED STATES of America, Defendant.

Civil Action No. H-07-461.

United States District Court, S.D. Texas, Houston Division.

January 14, 2009.

John L. Green, Attorney at Law, Houston, TX, for Plaintiff.

Joshua David Smeltzer, United States Department of Justice, Tax Division, Dallas, TX, for Defendant.

OPINION & ORDER

MELINDA HARMON, District Judge.

Pending before the Court in this tax case is the United States' motion for summary judgment (Doc. 16). Dr. Lonnie J. Bean Jr. ("Dr. Bean") has filed a response in opposition (Doc. 21) and a cross-motion for summary judgment (Doc. 22). The United States has filed a reply to Plaintiff's response (Doc. 23) and a response in opposition to Plaintiff's cross-motion for summary judgment (Doc. 24). Additionally, Dr. Bean has filed a response to reply to response to motion for Summary Judgment and opposition to cross motion for summary judgment (Doc. 25.) For the reasons explained below, the Court ORDERS that the United States' motion is GRANTED and that Dr. Bean's motion is DENIED.

I. Background & Relevant Facts

The Court must determine whether Dr. Bean is liable for a 100% tax penalty because a corporation, General Express, failed to hand over withholding tax from its employees' paychecks. General Express failed to file its payroll tax returns (Form 941) for the quarterly periods ending September 30, 1998, through December 31, 2001, or pay the amounts due in those quarters, amounting to $ 1,022,057.30.¹ Under 26 U.S.C. § 6672, Dr. Bean will be liable for the entire amount of the withholding tax due to the Internal Revenue Service ("IRS") if, at the time the tax was due, he was, with regards to General Express, a "responsible person" who "willfully" failed to turn over the withholding tax.

Dr. Bean is a medical doctor practicing in Beaumont, Texas. Doc. 16 Exh. 3 at 9, 17. In 1997, Dr. Bean's niece and her husband, Cindy and Bruce Booker, convinced him to invest $25,000 in a partnership, General Deliveries. Doc. 16 Exh. 5 at 33, 34 & 38; Doc. 16 Exh. 6 at 15. General Deliveries used students to drive small trucks and make deliveries for restaurants in the Woodlands area. Doc. 16 Exh. 5 at 33-34. The business failed, but Dr. Bean, and Cindy and Bruce Booker decided to continue operating the business in an expanded version, this time as a corporation named General Express. Doc. 16 Exh. 5 at 33-34; Doc. 16 Exh. 6 at 15, 20-22. The new company made not just restaurant deliveries but trucking, courier, and short-range load deliveries, known as "hotshots" or "hot loads." Id. Dr. Bean provided the funds to start-up this business. Id.

On July 7, 1998, Dr. Bean, as President of General Express, filed a certificate of amendment to General Express' articles of incorporation, listing himself as the company's sole director and shareholder. Doc. 16 Exh. 9 at 1-2. At the same time, General Express issued one thousand shares in total, all to Dr. Bean. Doc. 16 Exh. 10 at 1. Dr. Bean, however, denied any involvement with the corporation except as a benevolent family financier. Doc. 16 Exh. 3. For example, he stated "I didn't have anything to do with payroll." Doc. 16 Exh. 3 at 36. He conceded, however, that all payroll checks required his signature, via stamp. Id. At his deposition, Dr. Bean testified as follows regarding the control of payroll checks:

Q: Now, you had said that at least a majority, if not all, the payroll checks were signed via a stamp?

A: Uh-huh.

Q: Who had access to that stamp?

A: The office—that office with the people in there, and I think that the payroll person who was doing it was Tonja Brown.

Q: Now, how did it come about that they had a stamp for your name?

A: Because I wasn't going to be involved in anything. So I had a stamp— I have stamps in my office, and I told them you can take a stamp and, you know stamp my—just stamp my name on the checks. I knew I wasn't involved in anything. I had a business. I had a life.

Doc. 16 Exh. 3 at 46-47 (emphasis added). This line of testimony continued as follows:

Q: Did it concern you that essentially they could stamp their name to any single check that the company had?

A: Truthfully, no, because I trust my family.

Doc. 16 Exh. 3 at 47. This line of questioning went on Q: Did you ever get any notifications that they were stamping checks without enough money to cover them?

A: Yes.

Q: When did you get those?

A: Multiple times. I can't say the first time, but multiple times.

Doc. 16 Exh. 3 at 47. In her affidavit, Tonja Brown, Dr. Bean's niece, testified that she issued the payroll checks and signed or stamped these checks on his behalf. Doc. 21 Exh. 3.

Dr. Bean showed knowledge of when and under which account General Express employees were paid. Doc. 16 Exh. 3 at 36. Dr. Bean received the bank statements from General Express' payroll and operating accounts at his medical office in Beaumont, Texas. Doc. 16 Exh. 12 & Exh. 13.

On October 14, 1999, Dr. Bean sent a fax to Bruce Bean, Cindy and Bruce Booker and others operating General Express. Doc. 16 Exh. 17 at 1. In it, Dr. Bean states, "[i]t appears to me (opinion only) that we are not going in the right direction with this company." Id. Furthermore, "[r]eports I received of the last meeting, which I did not attend, are that it was a fiasco." Id. Dr. Bean complained of the "unprofessionalism" and "lack of business acumen." Id. Specifically, Dr. Bean expressed concern that General Express was failing to meet its commitments in paying drivers, insurance premiums and installments on trucks. Id.

Dr. Bean had the authority to obtain loans on behalf of General Express. For example, he acted as the guarantor of a $ 250,000 loan from Community Bank and Trust to General Express, while also signing on behalf of General Express as its President. Doc. 16 Exh. 14 at 3-4. Additionally, Dr. Bean loaned General Express approximately $ 200,000 of his personal funds. Doc. 16 Exh. 3 at 50-51.

General Express was a loss-making enterprise. Doc. 16 Exh. 4 at 30. Dr. Bean was the sole reason for its continued existence, providing loans on a weekly, sometimes daily basis. Id. at 30, 34. Despite these loans, General Express' bank statements on its operating and payroll accounts showed insufficient funds charges and negative balances throughout 1999 and 2000. Doc. 16 Exh. 12 & 13.

Sometime between 1998 and 2001, Dr. Bean recalled being warned of tax problems at General Express by an "acquaintance" of Bruce Bean, his brother and an officer at General Express. Doc. 16 Exh. 3 at 69-70. At his deposition, Dr. Bean testified as follows:

Q: Did it concern you that someone had called saying that there were tax problems at a company you were 100 percent shareholder of?

A: It concerned me, but my brother—I just felt like my brother would take care of me.

Doc. 16 Exh. 3 at 70.

Because Dr. Bean ran his own private practice, he admitted being intimately familiar with the requirements of Form 941, which pertains to tax withholding from employee salaries. Doc. 16 Exh. 3 at page 79. Dr. Bean filed the quarterly Form 941 for his office personnel at his private practice. Id. Dr. Bean, therefore, acknowledged being aware that General Express also needed to file Form 941. Id. at 80. According to Dr. Bean, his brother Bruce Bean was in charge of all "business" at General Express, including, presumably filing Form 941. Id.

General Express failed to file its payroll tax returns (Form 941) for the quarterly periods ending September 30, 1998, through December 31, 2001, or pay the amounts owed for those quarters. Doc. 16 Exh. 15. Pursuant to the authority of 26 U.S.C. § 6020(b), the IRS filed tax returns for General Express on November 30, 2003, and assessed the proper amounts due. (See General Express Form 941's for 9/30/1998 to 12/31/2001, Doc. 16 Exh. 15). The current amount due for the quarterly periods ending September 30, 1998, through December 31, 2001, calculated through August 25, 2008, is $ 1,022,057.30. Doc. 16 Exh. 16.

II. Summary Judgment Standard

A party moving for summary judgment must inform the court of the basis for the motion and identify those portions of the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, that show that there is no genuine issue 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); Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The substantive law governing the suit identifies the essential elements of the claims at issue and therefore indicates which facts are material. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The initial burden falls on the movant to identify areas essential to the nonmovant's claim in which there is an "absence of a genuine issue of material fact." Lincoln Gen. Ins. Co. v. Reyna, 401 F.3d 347, 349 (5th Cir.2005). If the moving party fails to meet its initial burden, the motion must be denied, regardless of the adequacy of any response. Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir.1994) (en banc). Moreover, if the party moving for summary judgment bears the burden of proof on an issue, either as a plaintiff or as a defendant asserting an affirmative defense, then that party must establish that no dispute of material fact exists regarding all of the essential elements of the claim or defense to warrant judgment in his favor. Fontenot v. Upjohn, 780 F.2d 1190, 1194 (5th Cir.1986) (the movant with the burden of proof "must establish beyond peradventure all of the essential elements of the claim or defense to warrant judgment in his favor") (emphasis in original). In a refund suit, the taxpayer has the burden of proving that the IRS's determination is incorrect. Yoon v. Comm'r, 135 F.3d 1007, 1012 (5th Cir.1998).

Once the movant meets its burden, the nonmovant must direct the...