City of Phila. v. Lerner
| Decision Date | 22 November 2016 |
| Docket Number | No. 26 EAP 2015,26 EAP 2015 |
| Citation | 151 A.3d 1020 |
| Parties | CITY OF PHILADELPHIA, Appellee v. Nathan LERNER, Appellant |
| Court | Pennsylvania Supreme Court |
J. Matthew Wolfe, Law Offices of J. Matthew Wolfe, PC (The), 4256 Regent Sq., Philadelphia, PA 19104, for Nathan Lerner, Appellant.
Kelly Susan Diffily, City of Phila Law Dept., 1515 Arch St Fl 17, Philadelphia, PA 19102, for City of Philadelphia, Appellee.
OPINION
Nathan Lerner appeals the Commonwealth Court's order denying his request for relief. We granted allocatur to address the following issue:
[Whether t]he Commonwealth Court [properly] decided that [it was] constrained by its own decision in Krug v. City of Philadelphia, 152 Pa.Cmwlth. 475, 620 A.2d 46 (1993) [,] to sustain a judgment for a tax assessment where the Common Pleas Court found that there was no rational basis for the amount allegedly owed by the [p]etitioner and the Commonwealth Court stated that the City's tactics may well lack authority in law.
City of Philadelphia v. Lerner, 117 A.3d 1278 (Pa. 2015). We affirm.
In September 2004, an anonymous informant sent the City of Philadelphia a letter claiming that Lerner was concealing taxable business income from the City. Attached to the letter were photocopies of checks made payable to Lerner. Several of these checks were issued by Lerner's alleged business partner, Lester Goldstein. Notes of Testimony ("N.T."), 6/26/2013, at 138–42. The City proceeded to investigate the anonymous tip.
In auditing Goldstein, the City discovered that Lerner had business interests in two real estate holding companies: Elco Associates ("Elco") and LeGo Associates ("LeGo"). The City also learned that Goldstein and Lerner had entered into a $94,000 "combined loan agreement" in late 2002 concerning these two entities. N.T. at 98. Pursuant to a separate contract, which was attached to the combined loan agreement, Lerner transferred to Goldstein an $85,000 partnership interest in LeGo. The audit also revealed a 2006 supplemental agreement between Lerner and Goldstein. In that agreement, Lerner disclaimed his interests in two properties: 4507 Chester Avenue and 280 West Walnut Lane.2 N.T. at 99.
In February 2006, the City sent Lerner a letter alleging that he had failed to pay Philadelphia's net profits tax and/or business income and receipts tax. The letter instructed Lerner to submit copies of his federal tax returns from the prior five years, to complete an attached worksheet, and to remit payment to the City within thirty days. The letter stated that non-compliance would result in the City's filing of an enforcement action. The City never received a response from Lerner.3 Approximately one month later, the City sent Lerner a "final notice," stating that it would institute collection proceedings if Lerner failed to submit copies of his federal tax returns within ten days. Lerner ignored the notice.
In November 2006, the City sent Lerner a delinquent tax bill, which estimated that Lerner's net business income was $150,000.00 per year. N.T. at 29–32. This number apparently was not tied to any specific information in the City's possession because, without Lerner's tax records, the City had no idea how much Lerner's businesses earned. The City hoped that, confronted with an exorbitant assessment, Lerner would hand over his business records. But this failed to get Lerner's attention. He simply ignored the bill.
Eventually, the City brought a collection action. When Lerner failed to answer the City's complaint, the City obtained a default judgment. R.R. at 3b. Soon after, Lerner discovered that a default judgment had been entered against him. He moved to open that judgment, arguing that the City's service of process had been defective. The trial court opened the judgment on December 24, 2009. Six days later, Lerner sent the City a letter stating that he had never received the delinquent tax bill that the City had mailed to him three years earlier. On January 7, 2010, the City sent Lerner another copy of the bill. Lerner admitted that he received this copy.
On February 2, 2010, the City reinstated and served on Lerner its collection action complaint. R.R. at 3b. The City made numerous attempts to meet with Lerner in person to resolve his case, but Lerner refused the City's offers. N.T. at 64–67, 77–78. Approximately nine months later, on November 10, 2010, Lerner filed a petition for review with the City's Tax Review Board. The Board held a hearing, concluded that it lacked jurisdiction in light of the collection action pending in the trial court, and dismissed Lerner's petition. Lerner appealed the Board's dismissal to the trial court, which consolidated Lerner's appeal with the City's collection action. Notably, the trial court later quashed Lerner's appeal after he refused to pay for a transcript of the administrative hearing.4 This effectively severed the collection action from Lerner's appeal. The Commonwealth Court affirmed the trial court's order quashing Lerner's appeal. Lerner's appeal from the Board's determination that it lacked jurisdiction over Lerner's petition for review is not presently before us.
Lerner sought to delay the City's collection action with onerous discovery requests and frivolous filings. He served hundreds of interrogatories, requests for admissions, and requests for production of documents. Meanwhile, Lerner simultaneously disregarded the City's discovery requests and refused to disclose information about his income, expenses, assets, and business interests. When the trial court ordered Lerner to comply, he violated the court's order. As a result, the court precluded Lerner from entering any evidence at trial that he had not disclosed to the City.
Prior to trial, the City filed a motion in limine to preclude Lerner from challenging the underlying tax assessment. The City cited Krug v. City of Philadelphia, 152 Pa.Cmwlth. 475, 620 A.2d 46 (1993) for the straightforward proposition that a taxpayer who has not appealed his or her assessment to the Tax Review Board cannot challenge that assessment in a later collection action. See id. at 48–49 (). Lerner did not file a response to the City's motion in limine .5 The trial court granted the City's motion, thereby precluding Lerner from challenging the assessment of his tax liability at trial.
On June 26, 2013, the parties proceeded to a bench trial. Denise Reynolds, a revenue collection manager with the Philadelphia Department of Revenue, testified for the City. When asked how the City determines net business income if a taxpayer refuses to submit the necessary records, Reynolds candidly replied that her supervisor "really just makes [it] up." N.T. at 43–44. At the conclusion of trial, the court awarded the City $280,772.67, which included principal liability of $74,907, $85,828.05 in interest, and $120,037.62 in penalties. N.T. at 11. Although the City's tax assessment was, as the trial judge characterized it, "basically an amount pulled out of the sky," the trial court concluded that Lerner had waived his right to challenge that assessment when he failed to timely petition the Board for review. Id. at 259–60, 265 (); see Krug, supra.
Lerner filed a post-trial motion, wherein he argued that the "judgment in this matter is not supported by substantial evidence and is against the weight of the evidence." See Lerner's Post–Trial Motion, 7/8/2013, at ¶ 10. Lerner chose to focus on this issue even though the trial court itself agreed that the City's assessment lacked evidentiary support. Lerner never asserted that the trial court erred in granting the City's motion in limine , nor did he take issue with the trial court's reliance upon Krug.
After the court denied his post-trial motion, Lerner filed a notice of appeal and a concise statement of errors complained of on appeal pursuant to Pa.R.A.P. 1925(b). In his concise statement, Lerner simply incorporated by reference the issue that he raised in his post-trial motion, to wit, whether the City's tax assessment was supported by substantial evidence. In its Rule 1925(a) opinion, the trial court again cited Krug and explained that "the validity of the assessment and whether [Lerner] is liable for the delinquent taxes are no longer [at] issue because [Lerner] waived his right to challenge them." Trial Court Op., 10/22/2013, at 10.
On appeal to the Commonwealth Court, Lerner argued for the first time that the trial court's reliance upon Krug was misplaced. Specifically, Lerner now decided to assert on appeal that a taxpayer who fails to exhaust his or her administrative remedies may nonetheless challenge a tax assessment in a subsequent collection action when the taxing authority's own evidence demonstrates that the assessment has no basis in fact. Although Lerner espouses the same argument before this Court, he has not preserved it. See Pa.R.A.P. 302(a) (). In Commonwealth v. Hill, 609 Pa. 410, 16 A.3d 484 (2011), we reaffirmed the well-settled, bright-line rule:
[A]ny issues not raised in a Rule 1925(b) statement will be deemed waived; the courts lack the authority to countenance deviations from the Rule's terms; the Rule's provisions are not subject to ad hoc exceptions or selective enforcement;...
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