Colosimo v. U.S.A

• Citation: 707 F.Supp.2d 926
• Decision Date: 16 February 2010
• Docket Number: No. 4:08-CV-00397.,4:08-CV-00397.
• Parties: Charles A. COLOSIMO, Sr., Plaintiff,v.UNITED STATES of America, Defendant.Charles A. Colosimo and Carolyn Colosimo, Defendants on Counterclaim.
• Court: U.S. District Court — Southern District of Iowa

707 F.Supp.2d 926

Charles A. COLOSIMO, Sr., Plaintiff,

v.UNITED STATES of America, Defendant.

Charles A. Colosimo and Carolyn Colosimo, Defendants on Counterclaim.

No. 4:08-CV-00397.

United States District Court,

S.D. Iowa,

Central Division.

Feb. 16, 2010.

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James R. Monroe, Jerrold Alan Wanek, Robert C. Gainer, Garten & Wanek, Des Moines, IA, for Plaintiff.

Russell S. Clarke, Robert E. Fay, U.S. Dept. of Justice, Tax Division, Washington, DC, for Defendant.

ORDER

JOHN A. JARVEY, District Judge.

I. PROCEDURAL BACKGROUND

A. Pleadings

On January 1, 2007, the IRS assessed trust fund recovery penalties of $711,234.82 against Charles Colosimo (“Colosimo”), Carolyn Colosimo (“Carolyn”), and Andrew Gillaspey (“Gillaspey”) pursuant to 26 U.S.C. §§ 6671 and 6672. On September 19, 2008, Colosimo filed a Claim for Refund and Abatement with the IRS in Minneapolis, requesting a refund of the trust fund recovery penalty of $100 for the 12/31/01 quarter. The United States denied this claim for refund and abatement [ See Dkt. 1, Form 843]. On September 26, 2008, Colosimo brought an action against the United States to abate the trust fund recovery penalty and refund all amounts withheld by the United States from him, alleging that the IRS improperly assessed the penalty against him [Dkt. 1].

On November 26, 2008, the government filed an answer to Colosimo's complaint [Dkt. 2]. The government further brought a counterclaim against Colosimo, joining Carolyn and Gillaspey as defendants on the counterclaim. The government brought the counterclaim pursuant to 26 U.S.C. § 7401 to reduce to judgment separate federal tax assessments made against the three, alleging that each counterclaim defendant, as a responsible person within C & C Distribution Services, Inc. (“C & C Distribution”), willfully failed to pay over withheld income and FICA taxes to the United States. On December 9, 2008, the government dismissed the counterclaim against Gillaspey, leaving only Colosimo and Carolyn as counterclaim defendants [Dkt. 5].

On December 15, 2008, Colosimo and Carolyn filed a joint answer to the counterclaim, denying most of the allegations and asserting affirmative defenses [Dkt. 6]. In particular, they asserted that neither of them were “responsible parties” within C & C Distribution, and neither willfully failed to pay, collect, or truthfully account for the withheld taxes.

B. Motions before the court

1. Carolyn's motion for summary judgment and Colosimo's motion to strike

On October 28, 2009, Carolyn filed a motion for summary judgment [Dkt. 12], arguing that she was not a “responsible person” under 26 U.S.C. § 6672. On November 23, 2009, the government filed a response to Carolyn's motion, arguing that whether Carolyn was a “responsible person”, and whether she willfully failed to pay over withheld taxes, presented genuine issues of material fact [Dkt. 15]. In support of the argument that Carolyn was a “responsible person”, the government cited a declaration by IRS representative Rebecca Denning (“Denning”) that Carolyn had told Denning that Carolyn had the authority at C & C Distribution to prepare, review, sign, and transmit payroll tax returns [Dkt. 15, Appendix, at 260-61].

On December 4, 2009, Carolyn filed a reply to the government's response, conceding that a genuine issue of fact would exist on the willfulness issue, but contesting the government's argument that there are genuine issues of material fact on the threshold issue of whether Carolyn is a “responsible person” [Dkt. 21]. In addition, Carolyn argued that statements in Denning's declaration should be stricken under the “sham affidavit” doctrine, and asked for an award of attorneys' fees for filing the brief under the same doctrine. On December 11, 2009, the government filed a surreply to Carolyn's reply, requesting that the court find that it did not submit a “sham affidavit” and that Carolyn must bear her own attorneys' fees for her reply brief [Dkt. 25]. On December 28, 2009, Carolyn filed a reply to the government's surreply [Dkt. 30].

Meanwhile, on December 10, 2009, Colosimo filed a related motion to strike Rebecca Denning's Declaration-and the government's Statement of Additional Material Facts that relied on it-based on the “sham affidavit” doctrine [Dkt. 24]. The government filed a reply to Colosimo's motion to strike on December 23, 2009, arguing that the portion of Denning's declaration objected to does not affect Colosimo's position in this litigation, as it only relates to Carolyn [Dkt. 29].

2. Colosimo's and the government's cross-motions for summary judgment

On December 1, 2009, Colosimo and the government each filed motions for summary judgment against one another [Dkts. 18 and 19, respectively]. Charles argues that he is not a responsible party for C & C Distribution and did not willfully fail to pay over withholding taxes to the United States. On December 23, 2009, the government filed a response to Colosimo's motion for summary judgment [Dkt. 27], and on January 4, 2010, Colosimo filed a reply [Dkt. 32]. On December 28, 2009, Colosimo filed a response to the government's motion for summary judgment [Dkt. 31], and on January 7, 2010, the government filed a reply [Dkt. 33].

In accordance with the reasoning below, the court rules as follows:

(i) Carolyn's motion for summary judgment is granted;

(ii) Carolyn's request for attorneys' fees is denied;

(iii) Colosimo's motion to strike is denied;

(iv) Colosimo's motion for summary judgment is denied; and

(v) the government's motion for summary judgment against Colosimo is granted.

II. MOTION FOR SUMMARY JUDGMENT-THE LEGAL STANDARD

A motion for summary judgment may be granted only if, after examining all of the evidence in the light most favorable to the nonmoving party, the court finds that no genuine issues of material fact exist and that the moving party is entitled to judgment as a matter of law. HDC Med., Inc. v. Minntech Corp., 474 F.3d 543, 546 (8th Cir.2007) (citation omitted); see also Kountze ex rel. Hitchcock Found. v. Gaines, 536 F.3d 813, 817 (8th Cir.2008) (“[S]ummary judgment is appropriate where the pleadings, discovery materials, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to summary judgment as a matter of law.”).

Once the movant has properly supported its motion, the nonmovant “may not rest upon the mere allegations or denials of [its] pleading, but ... must set forth specific facts showing that there is a genuine issue for trial.” Fed.R.Civ.P. 56(e). “[A]n issue of material fact is genuine if the evidence is sufficient to allow a reasonable jury verdict for the nonmoving party.” Great Plains Real Estate Dev., L.L.C. v. Union Cent. Life Ins. et al., 536 F.3d 939, 944 (8th Cir.2008) (citation omitted). “A genuine issue of fact is material if it ‘might affect the outcome of the suit under the governing law.’ ” Saffels v. Rice, 40 F.3d 1546, 1550 (8th Cir.1994) (citation omitted). The nonmoving party is entitled to all reasonable inferences that can be drawn from the evidence without resort to speculation. Sprenger v. Fed. Home Loan Bank of Des Moines, 253 F.3d 1106, 1110 (8th Cir.2001). “[A]lthough [the non-moving party] does not have to provide direct proof that genuine issues of fact exist for trial, the facts and circumstances that she [or he] relies ‘upon must attain the dignity of substantial evidence and not be such as merely to create a suspicion.’ ” Taylor v. White, 321 F.3d 710, 715 (8th Cir.2003) (citation omitted). The mere existence of a scintilla of evidence in support of the plaintiff's position will be insufficient; there must be evidence on which the jury could reasonably find for the plaintiff. Sprenger, 253 F.3d at 1110.

III. UNDISPUTED FACTS

A. C & C Distribution in general

C & C Distribution leased storage space and operated truck delivery services. It had over thirty employees. Colosimo, Carolyn, and Gillaspey were officers and/or employees of C & C Distribution from 2001 to 2004. Colosimo and Carolyn's son, Charles Colosimo, Jr. (“Charles, Jr.”) was also involved with the company. Between 2000 and 2004, C & C Distribution failed to pay over to the United States the income and employment taxes withheld from the wages of its employees. The IRS determined that Colosimo, Carolyn, and Gillaspey were responsible for collecting, truthfully accounting for, and paying over those withheld income and employment taxes but willfully failed to do so.

Between 2001 and 2004, Colosimo and Carolyn collectively owned 100 percent of the stock in C & C Distribution; each owned 50 percent. The Colosimos also co-owned an entity named C & C Realty. Between 2001 and 2004, C & C Distribution rented space in two warehouses owned by C & C Realty, and Colosimo signed the lease agreements between C & C Distribution and C & C Realty. Taken together, these leases obligated C & C Distribution to pay over $56,000 per month to C & C Realty. Between 2001 and 2004, C & C Distribution accrued a debt of over $500,000 to C & C Realty for unpaid rent.

Forms 941 are federal withholding tax returns. C & C Distribution did not file Forms 941 for any quarter of 2001, 2002, 2003, or 2004 prior to June 1, 2004. Colosimo signed C & C Distribution's Forms 941 for the quarters ending September 30, 2004 and December 31, 2004, and Gillaspey signed C & C Distribution's federal income tax returns for the years 2001 through 2004.

Between 2001 and 2004, Wendy Wiedner (“Wiedner”) was C & C Distribution's outside accountant. When Wiedner learned of C & C Distribution's large unpaid tax liability in June 2004, she met with Colosimo and Gillaspey. After June 4, 2004, Colosimo and Carolyn were undisputedly aware of C & C Distribution's unpaid federal tax liability.

C & C Distribution disbursed funds at least through December 30, 2005 from a Meta Bank/Iowa Savings Bank account held in its...