Cook v. US

• Decision Date: 29 May 1991
• Docket Number: Civ. A. No. 1:CV-90-519.
• Citation: 765 F. Supp. 217
• Parties: Dean A. COOK, Plaintiff, v. UNITED STATES of America, Defendant and Third Party Plaintiff, v. Nicholas SPITHOGIANIS, and Lawrence L. Cirillo, Third Party Defendants.
• Court: U.S. District Court — Middle District of Pennsylvania

765 F. Supp. 217

Dean A. COOK, Plaintiff, v. UNITED STATES of America, Defendant and Third Party Plaintiff, v. Nicholas SPITHOGIANIS, and Lawrence L. Cirillo, Third Party Defendants.

Civ. A. No. 1:CV-90-519.

United States District Court, M.D. Pennsylvania.

May 29, 1991.

David E. Lehman, Harrisburg, Pa., for Dean Cook.

Bruce Brandler, U.S. Attys. Office, Scranton, Pa., for U.S.

Bruce Brandler, U.S. Attys. Office, Scranton, Pa., Gregory D. Stefan, U.S. Dept. of Justice, Trial Atty., Tax Div., Washington, D.C., for the U.S.

Nicholas Spithogianis, pro se.

Lloyd R. Persun, Harrisburg, Pa., Christopher Charles Conner, Mette, Evans & Woodside, Christian Steven Daghir, Mette, Evans and Woodside, Harrisburg, Pa., for Lawrence L. Cirillo.

MEMORANDUM

CALDWELL, District Judge.

I. Introduction

This action arises pursuant to Section 6672 of the Internal Revenue Code (26 U.S.C. § 6672), which imposes penalties for failure of responsible persons to collect and pay over taxes to the United States. Plaintiff, Dean A. Cook, filed a complaint against the United States of America, to recover an amount paid in partial satisfaction of a § 6672 assessment against him, which he alleges was improperly administered. The Government responded with a counterclaim against Cook to enforce judgment and collect the balance of the assessment. Additionally, the Government filed a third-party complaint against defendants, Lawrence L. Cirillo and Nicholas Spithogianis, to reduce to judgment assessments imposed on them under § 6672. Cook and Cirillo, in turn, filed separate cross-claims against Spithogianis, seeking indemnity or contribution in the event judgment is entered against them. Each allege that Spithogianis was the person responsible for withholding taxes, and Cirillo contends that Spithogianis also contracted to indemnify him.

Pending is the Government's motion to strike the cross-claims of Cook and Cirillo on the grounds that this Court lacks subject matter jurisdiction over them pursuant to Rule 12(h)(3) of the Federal Rules of Civil Procedure. The Government's central contention is that there is no federal common law or statutory right to contribution or indemnity under § 6672.

II. Federal Right to Contribution or Indemnity under § 6672

It is well settled that an individual subject to a tax assessment pursuant to § 6672 has no federal common law or statutory right of action for contribution or indemnity against another individual who may also be so liable. DiBenedetto v. United States, 75-1 U.S. Tax Cas. para. 9503, 1974 WL 791 (D.R.I., 1974); Padalino v. United States v. Murray, et al., 1989 WL 154322, 1989 U.S. Dist. LEXIS 13,543, 89-2 U.S. Tax Cas. para. 9632 (D.C.N.J. 1989); Swift v. Levesque, 614 F.Supp. 172 (D.C.Conn.1985); Rebelle v. United States, 588 F.Supp. 49 (M.D.La.1984); Schoot v. United States, 664 F.Supp. 293 (N.D.Ill. 1987); Moats v. United States, 564 F.Supp. 1330 (W.D.Mo.1983); Hanhauser v. United States, 85 F.R.D. 89 (M.D.Pa.1979). The Government contends that neither Cook nor Cirillo have asserted any independent grounds for this Court's jurisdiction over those claims. "It has been consistently recognized in the federal courts that where an action is patently without merit, a federal court may dismiss such an action for want of subject matter jurisdiction." Carver v. England, 599 F.2d 1055 (6th Cir. 1979); Duke Power Co. v. Carolina Environmental Study Group, 438 U.S. 59, 70, 98 S.Ct. 2620, 2628, 57 L.Ed.2d 595 (1978); Studen v. Beebe, 588 F.2d 560, 566 (6th Cir.1978).

A. Public Policy Considerations

First, regardless of the alleged existence of diversity or ancillary jurisdiction in this matter, we are convinced that there is a clearly defined public policy which disfavors allowing claims of contribution or indemnity to interfere with the tax collection process under § 6672. The majority of jurisdictions express a genuine concern "to avoid complicating the Government's action to collect the § 6672 penalty with collateral litigation between the parties." Schoot, supra, 664 F.Supp. at 298. "The practice and procedures developed over the years to test the validity of a § 6672 assessment were not and are not designed for and should not be complicated by collateral litigation that may be instituted by and between various persons who may be determined to be `responsible persons' in a particular case." Moats, supra, 564 F.Supp. at 1341-1342.

Rather, the primary purpose of § 6672 is to "ensure that the tax which is unquestionably owed to the government is paid." Feist v. United States, 607 F.2d 954, 957, 221 Ct.Cl. 531 (1979); Botta v. Scanlon, 314 F.2d 392, 393 (2d Cir.1963). Clearly, the "statute serves as a collection device for the government, and not as a source of a cause of action between or among persons found to be `responsible' parties." Swift, supra, 614 F.Supp. at 173.

Additionally, § 6672 has been construed by several courts as penal in nature. Thus, to allow parties to recover from other responsible persons would greatly hinder the deterrent purpose of the statute. "Without the possibility that any one of several responsible persons might be held solely accountable for a penalty imposed without benefit of contribution, little incentive would exist for anyone to act in accordance with the law by coming forward sua sponte to pay or account for the taxes in question." Continental Illinois Nat. Bank & Trust Co. v. United States, 87-2 U.S. Tax Cas. para. 9442, at 89,245, 1987 WL 12206 (N.D.Ill.1987). As the District Court in Rebelle reasoned:

A `responsible persons' resolve to willfully fail to collect such taxes may be weakened when faced with the possibility of bearing all of the 100% penalty than it would be if there was a right to spread and diversify this burden or risk among the group. The need for government action is obviated if only one potentially liable person in a group of potentially liable people acts properly. The risk of bearing this penalty alone may bring that one person to the forefront a little more readily, and thus save the government the additional enforcement expense.

Id. 588 F.Supp. at 51.

Finally, any party liable under § 6672 must necessarily be found to have "willfully" failed to collect or truthfully account for and pay over taxes to the Government. § 6672(a). Under the general principles of contribution and indemnity, a person who acts willfully cannot seek contribution. Hanhauser, supra, 85 F.R.D. at 92; Rebelle, supra, 588 F.Supp. at 51; Continental, supra; Cohen v. United States, 75-1 U.S. Tax Cas. para. 9391, at 86,967, 1975 WL 556 (E.D.Mich.1975); DiBenedetto, supra; Cage v. New York C. Railroad Co., 276 F.Supp. 778 (W.D.Pa. 1967), aff'd, 386 F.2d 998 (3d Cir.1967); Rhoads v. Ford Motor Co., 374 F.Supp. 1317 (W.D.Pa.1974), aff'd, 514 F.2d 931 (3d Cir.1975). Thus, based upon these policy considerations, we have no subject matter jurisdiction over the cross-claims in question.

B. State Law Right to Contribution or Indemnity Under § 6672

Cook does not dispute that there is no federal common law right to contribution or indemnity under § 6672. However, he argues that such right exists pursuant to Pennsylvania law. Regardless of whether a state claim exists, it is well settled that a federal court lacks subject matter jurisdiction to consider a state claim for indemnity or contribution at the same time as the Government's § 6672 penalty enforcement action. Schoot, supra, 664 F.Supp. at 298; Schoot, 664 F.Supp. at 297; Swift, 614 F.Supp. at 176; Garity, 46 A.F.T.R.2d 80-5143, 1980 WL 1546. These courts have consistently directed parties seeking indemnity or contribution in a § 6672 federal action to file a separate state claim in a subsequent proceeding. Schoot, 664 F.Supp. at 298; Swift, 614 F.Supp. at 177; Padalino, supra (the Court refused to decide whether New Jersey state courts would allow contribution or indemnity in § 6672 actions and held that the issue should be brought to state court).

"There is no subject matter jurisdiction for federal courts to consider actions grounded upon state law in the same action where the government seeks enforcement of its section 6672 penalties." Schoot, supra, 664 F.Supp. at 297. Further, in accordance with indicated policy considerations, that a state law permits "contribution between responsible persons under § 6672 in no way inhibits the efficient collection of taxes owed to the government, provided the claim of contribution is brought as an action separate from that brought by the IRS pursuant to § 6672." Id. quoting Swift, supra, 614 F.Supp. at 177; DiBenedetto, supra (third-party defendant may not implead another defendant for contribution or even to obtain "exculpatory facts"). As stated by the Court in Schoot, "We believe that the Swift approach which allows a party to institute a separate action for indemnity or contribution after the IRS action is completed is the better approach to take." Schoot, supra, 664 F.Supp. at 297.¹ Cook counters that a state claim for contribution may in fact be considered in federal court at the same time as a § 6672 action according to Swift, supra, 614 F.Supp. at 175-76.

In Swift the Court held that according to Connecticut law the parties were entitled to contribution for § 6672 tax assessments under specific circumstances. However, we find that the Court would not have applied state law unless the parties asserted a state law right to contribution in their cross-claims and original complaint. In the present action, Cook did not allege a state law right to contribution or indemnity in his pleadings, doing so for the first time in his opposing brief. By implication under § 6672 and pursuant to applicable case law, a state law right to indemnity or contribution must be asserted in the pleadings. Otherwise, a cross-claim for indemnity and contribution must be viewed under federal statutory and common law and must therefore be dismissed for lack of subject matter...