Hudak v. United States
Decision Date | 15 July 2013 |
Docket Number | CIVIL ACTION NO. MJG-11-1271 |
Parties | TIMOTHY J. HUDAK, et ux. Plaintiffs v. THE UNITED STATES OF AMERICA Defendant |
Court | U.S. District Court — District of Maryland |
The Court has before it the United States' Motion for Summary Judgment Against Timothy Hudak [Document 100] and the materials submitted relating thereto. The Court has held a hearing and has had the benefit of the arguments of counsel.
At all times relevant hereto, Timothy Hudak ("Hudak") was the owner and president of related companies, referred to as "the Hudak Companies". The Hudak Companies failed to comply with their withholding and employment tax obligations for the quarterly tax periods ending on the following dates: 12/31/07, 9/30/08, 12/31/08, 3/31/09, 6/30/09, 9/30/09, 12/31/09, 3/31/10/, and 12/31/10. In due course, the Internal Revenue Service made an assessment pursuant to § 6672 of the InternalRevenue Code1 against Hudak.2 According to the Government, as of May 27, 2013, the § 6672 trust fund recovery penalties assessed against Hudak totaled approximately $2,338,248.91, which includes interest and costs that continue to accrue. Hudak made partial payment of the assessment3 against him, filed a claim for refund, and then brought the instant lawsuit. The Government has duly counterclaimed for the unpaid balance of the assessment.
By the instant motion, the Government seeks summary judgment against Hudak, rendering him liable for the amount due on the assessment with interest and costs.
A motion for summary judgment shall be granted if the pleadings and supporting documents show "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a).
The well-established principles pertinent to summary judgment motions can be distilled to a simple statement: The court may look at the evidence presented in regard to a motionfor summary judgment through the non-movant's rose-colored glasses, but must view it realistically. After so doing, the essential question is whether a reasonable fact finder could return a verdict for the non-movant or whether the movant would, at trial, be entitled to judgment as a matter of law. See, e.g., Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986); Shealy v. Winston, 929 F.2d 1009, 1012 (4th Cir. 1991).
When evaluating a motion for summary judgment, the court must bear in mind that the "summary judgment procedure is properly regarded not as a disfavored procedural shortcut, but rather as an integral part of the Federal Rules as a whole, which are designed 'to secure the just, speedy and inexpensive determination of every action.'" Celotex, 477 U.S. at 327 (quoting Rule 1 of the Federal Rules of Civil Procedure).
Section 6672 provides, in pertinent part:
Any person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such tax, . . . shall, in addition to other penalties provided by law, be liable to a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over.
26 U.S.C. § 6672 (a).
Thus, for Hudak to be liable pursuant to § 6672 he must, asto each period for which liability is asserted4 , have been a "responsible person" as well as "willfully" failed to collect and pay over the taxes at issue.
In the summary judgment context, Hudak as the non-moving party, is entitled to have "the credibility of his evidence as forecast assumed, his version of all that is in dispute accepted, all internal conflicts in it resolved favorably to him, the most favorable of possible alternative inferences from it drawn in his behalf; and finally, to be given the benefit of all favorable legal theories invoked by the evidence so considered." Charbonnages de France v. Smith, 597 F.2d 406, 414 (4th Cir. 1979). Therefore, despite the Government's vigorous denial of Hudak's assertions, for purposes of the instant discussion, the Court must accept the version of the facts most favorable to Hudak. On this basis, the Court cannot case aside the fact that a reasonable jury could find that:
Plett v. United States, 185 F.3d 216, 219 (4th Cir. 1999) (internal citations and quotations omitted).
The Fourth Circuit has developed a "non-exhaustive list of factors to consider in determining whether 'the substance of the circumstances' establishes responsible person status under § 6672." Erwin v. United States, 591 F.3d 313, 320 (4th Cir. 2010). Those factors include whether the person at issue:
Id. No one factor is determinative; the court is to assess the totality of the circumstances. Id.
While the Government may well prevail at trial, the evidence can be viewed as favoring Hudak as to at least one - if not more - of these factors. For example, on Hudak's version of the "facts", it was Mules and not he who determined which creditors to pay, when to pay them, and the amount they were to be paid. On Hudak's version, any check signing he did was perfunctory. Of course, the jury will make the ultimate determination of whether to accept Hudak's version of the facts.
The Government asserts that as the president and sole owner of the Hudak Companies, Hudak had the authority to pay the taxes owed and cannot escape responsible person status by claiming to have delegated that authority to Mules. However, that status does not necessarily make him a responsible person for § 6672 purposes. "[A] party cannot be presumed to be a responsible person merely from titular authority . . . The focus must instead be on substance rather than form." O'Connor v. United States, 956 F.2d 48, 51 (4th Cir. 1992) ( ). Although a person cannot avoid "responsible person status" by delegating much of his or her authority to others, the practical realities of the substance of a business arrangement cannot be ignored. See Erwin, 591 F.3d at 322-23 ( ).5 While Hudak does not claim to be a mere passive investor in the Hudak Companies, the evidence andinferences reasonably drawn from the record present genuine issues of material fact preventing summary judgment establishing Hudak's responsible person status for the entire period at issue.6
In the § 6672 context, the word "willful" means that the responsible person had "knowledge of nonpayment or reckless disregard of whether the payments were being made." Turpin v. United States, 970 F.2d 1344, 1347 (4th Cir. 1992) (internal quotation marks omitted). A responsible person's intentional preference of other creditors over the Internal Revenue Service will establish willfulness. See United States v. Pomponio, 635 F.2d 293, 298 n.5 (4th Cir. 1980). Such an intentional preference will exist if the responsible person "[knew] of or recklessly disregard[ed] the existence of an unpaid deficiency." Turpin, 970 F.2d at 1347.
The Government contends that Hudak had actual knowledge of, or recklessly disregarded, the Hudak Companies' employment tax noncompliance at all relevant times. If Hudak is unable to prove that the Government is wrong in this assertion, hiswillfulness will be established.
Hudak admits to having actual knowledge of the Hudak Companies' prior employment tax noncompliance as of February 17, 2010. As the Fourth Circuit has stated:
. . . [F]ollowing the lead of every other circuit to consider the question, we adopt the rule that when a responsible person learns that withholding taxes have gone unpaid in past quarters for which he was responsible, he has a duty to use all current and future unencumbered funds...
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