In re Associated Bicycle Service, Inc.

Decision Date25 September 1990
Docket NumberBankruptcy No. 88-61426,Adv. No. 89-6149.
Citation128 BR 436
CourtU.S. Bankruptcy Court — Northern District of Indiana


Wm. O'Toole, Michigan City, Ind., for plaintiff.

Mark Winer, U.S. Justice Dept., Washington, D.C., for defendant.



I Statement of Proceedings

This adversary proceeding came before the Court on a Motion for Summary Judgment filed by the Defendant on July 5, 1990.

By Order of this Court dated July 13, 1990, the Plaintiff was given 15 days to file a response or answer to said motion and upon so doing the Defendant was granted 7 days to file a reply thereto.

On September 5, 1990, the Plaintiff filed its Objection and Answer to Motion for Summary Judgment, with accompanying Statement of Material Facts and Memorandum of Law.

The Plaintiff's complaint filed on September 21, 1989, pursuant to 11 U.S.C. § 505 alleges as follows:

1. Associated Bicycle Service, Inc. (hereinafter "ABS") petitioned for relief under Chapter 11 of Title 11 U.S.C. on September 1, 1988; whereupon a 341 meeting was held on October 7, 1988.
2. ABS is in the business of assembling bicycles for major department stores and retail outlets.
3. As the situses of assembly are spread throughout the Midwest, ABS engages whomever it can find to assemble the bicycles.
4. The work force varies from site to site, is not engaged for more than one site, or for one occasion (that is, for one definite period during which the bikes must be assembled).
5. Each person so engaged brings his own tools, furnishes his own transportation to the worksite, and is unsupervised when he/she performs the assembly.
6. There is no uniform pay or work period, such as a week, two weeks, a month, a year.
7. ABS advertises or announces, or otherwise "spreads the word" when there are other assemblies to be done, and where they are to be done.
8. The period of association between any member of the workforce and ABS varies greatly, from one (1) job to many, over three (3) to six (6) months.
9. Until required by an operating order of this Court, ABS had not acquired workmen\'s compensation insurance for its workforce, thinking it to be the province and responsibility of each workman.
10. The retail outlets pay ABS directly for assembly services, and ABS in turn pays its workforce, sometimes according to an hourly schedule, sometimes according to a per-unit schedule.
11. ABS has been in business since 1982. With the exception of the early period, ABS has submitted to an employer status — on admonition from the Indiana Department of Employment Security — paying its workforce as employees rather than as independent subcontractors, or, perhaps more accurately, as a clearing house or union hall might summon or find work for its members.
12. For all the years that ABS operated as an employer, it contracted liability for employer\'s contributions to each "employee\'s" FICA. ABS also took on the responsibility for income tax withholding.
13. Such responsibilities as are given in paragraph 12 above are not consistent with ABS\' true role or operating profile, which is that of an independent contractor engaging independent subcontractors for piecemeal work at random times in unpredictable places.
14. ABS has accumulated an enormous liability for unpaid employer contributions, a problem compounded by parity penalties and sizeable interest fixments.
15. ABS cannot effectively reorganize without a determination that ABS is not an "employer" as this term is understood in the Internal Revenue Code, Title 26 U.S.C.
16. If ABS is not an "employer", then it is absolved from employer contributions to FICA, and the money which it should have withheld and paid to the IRS becomes an obligation the priority of whose status may be treated at some later date (perhaps in the debtor\'s plan), but which, in any event, is owed, not to the IRS, but to the subcontractors who contracted with it.
17. ABS is capable of formulating a plan which can repay former elements of the workforce their appropriate share of what from their pay had been withheld.
18. No amount of tax herein disputed has hitherto been contested by any court of competent jurisdiction (11 U.S.C. § 505(a)(2)); and this Court has jurisdiction over this matter by dint of 11 U.S.C. § 505(a)(1).

The Plaintiff prays for a judgment determining that as to its pre-petition and postpetition tax obligations it be adjudicated a "contractor" and not an "employer" as those terms are understood pursuant to the Internal Revenue Code, Title 26 U.S.C.; that it be granted leave to amend all Forms 941, and pay all its workforce on Form 1099, rather than Form W-2, and that the Plaintiff be found exempt from "employer" contributions for FICA purposes for all relevant years.


Conclusions of Law and Discussion

A General Principles Relating to Summary Judgment

No objections were made by the parties to the jurisdiction of this Court and the Court finds this is a core proceeding pursuant to 28 U.S.C. § 157.

The granting of a motion for summary judgment is proper if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c).

The moving party, in making a motion for summary judgment, "has the burden of establishing the lack of a genuine issue of material fact." Big O Tire Dealers, Inc. v. Big O Warehouse, 741 F.2d 160, 163 (7th Cir.1984); Korf v. Ball State University, 726 F.2d 1222, 1226 (7th Cir.1984).

When ruling on a motion for summary judgment, inferences to be drawn from underlying facts contained in such materials as attached exhibits, and depositions must be viewed in a light most favorable to the party opposing the motion. United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 994, 8 L.Ed.2d 176 (1962); See also, Yorger v. Pittsburgh Corning Corp., 733 F.2d 1215 (7th Cir. 1984).

By entering a summary judgment for a party, the court is concluding that based on the evidence upon which the nonmoving party intends to rely at trial, no reasonable jury could return a verdict for the non-moving party. Munson v. Friske, 754 F.2d 683, 690 (7th Cir.1985); Weit v. Continental Illinois National Bank & Trust Co., 641 F.2d 457, 461 (7th Cir.1981), cert. den., 455 U.S. 988, 102 S.Ct. 1610, 71 L.Ed.2d 847 (1982).

Once a moving party has met its initial burden, the opposing party must "set forth specific facts showing that there is a genuine issue for trial" and that the disputed fact is material. Posey v. Skyline Corp., 702 F.2d 102, 105 (7th Cir.1983), cert. den., 464 U.S. 960, 104 S.Ct. 392, 78 L.Ed.2d 336 (1983). Thus, if the movant carries his initial burden, the opposing party may not defeat the motion by merely relying on the contentions of its pleadings, but must produce significant probative evidence to support its position. First National Bank v. Cities Service Co., 391 U.S. 253, 289-90, 88 S.Ct. 1575, 1592-93, 20 L.Ed.2d 569 (1968); United States v. Pent-R Brooks, Inc., 538 F.2d 519 (2nd Cir.1976), cert. den. 430 U.S. 906, 97 S.Ct. 1175, 51 L.Ed.2d 582 (1977).

As noted by the Court in the case of Federal Deposit Insurance Corp. v. Meyer, 781 F.2d 1260 (7th Cir.1986), a response is insufficient to raise a genuine issue of material fact if it is not based on the personal knowledge of the affiant, and where affiant alleges to be without information to admit or deny the allegations contained in the Movant's affidavit, and demands strict proof thereof, at best the response asserts a mere suspicion or theoretical question of fact that is insufficient to raise a genuine issue of fact.

In addition, General Rule 11 as made applicable by Local Bankruptcy Rule B-111 provides as follows:

In determining the motion for summary judgment, the court will assume that the facts as claimed by the moving party are admitted to exist without controversy, except as and to the extent that such facts are actually in good faith controverted in the "statement of genuine issues" filed in opposition to the motion, as supported by the depositions, answers to interrogatories, admissions, and affidavits on file.

In Valley Liquors, Inc. v. Renfield Importers, Ltd., 822 F.2d 656, 659 (7th Cir. 1987), the Seventh Circuit addressed exactly what a party must demonstrate to show the existence of a genuine issue of fact precluding summary judgment. The Court stated:

A genuine issue for trial only exists when there is sufficient evidence favoring the nonmovant for a jury to return a verdict for that party. As the Supreme Court has stated, "if the evidence is merely colorable, or is not significantly probative, summary judgment may be granted." We must not weigh the evidence. Instead, we must see if the nonmovant\'s evidence is sufficient. In determining whether evidence is sufficient, we must of necessity consider the substantive evidentiary standard of proof, for example, preponderance of the evidence, that would apply at a trial on the merits. In addition, we draw all inferences in favor of the nonmovant. Such inferences, however, must be "justifiable". (Citations and footnote omitted).

In reaching its determination, the Court has the power to penetrate the allegations of fact in the pleadings and look to any evidential source to determine whether there is an issue of fact to be tried. Parmelee Transportation Co. v. Keeshin, 292 F.2d 794 (7th Cir.1961).

The Seventh Circuit in Egger v. Phillips, 710 F.2d 292, 296 (7th Cir.1983) (en banc) cert. den. 464 U.S. 918, 104 S.Ct. 284, 78 L.Ed.2d 262 (1983), held that to preclude a summary judgment, the nonmoving party must show the disputed fact to be material. That is, it must be outcome-determinative...

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