Lencyk v. I.R.S., EP-03-CA-0219-PRM.

Decision Date29 March 2005
Docket NumberNo. EP-03-CA-0219-PRM.,EP-03-CA-0219-PRM.
Citation384 F.Supp.2d 1028
PartiesJohn A. LENCYK, Plaintiff, v. INTERNAL REVENUE SERVICE, Defendant/Third-Party Plaintiff, v. Richard L. Ortiz, Third-Party Defendant.
CourtU.S. District Court — Western District of Texas

Rene Ordonez, Rodolfo Mata, Delgado, Acosta, Braden & Jones, P.C., El Paso, TX, for Plaintiff.

David P. Leeper, El Paso, TX, for Third-Party Defendant.

MEMORANDUM OPINION

MARTINEZ, District Judge.

On this day, the Court considered the following submissions in the above-captioned cause: (1) Richard L. Ortiz's ("Ortiz") "[First] Motion for Summary Judgment," filed on September 10, 2004; (2) Internal Revenue Service's ("IRS") "Response in Opposition to Richard Ortiz's [First] Motion for Summary Judgment and Brief," filed on September 23, 2004; (3) Ortiz's "Reply to IRS's Response in Opposition to Ortiz's [First] Motion for Summary Judgment," filed on October 7, 2004; (4) IRS's "Motion for Summary Judgment," filed on September 30, 2004, (5) Ortiz's "Objection to IRS's Motion for Summary Judgment," filed on October 8, 2004; (6) IRS's "Reply to Richard Ortiz's Objection to IRS's Motion for Summary Judgment," filed on October 20, 2004; (7) Ortiz's "Second Motion for Summary Judgment," filed on October 12, 2004; and (8) IRS's "Response in Opposition to Richard Ortiz's Second Motion for Summary Judgment," filed on October 20, 2004.

After due consideration and for the reasons set forth below, the Court is of the opinion that (1) IRS's Motion for Summary Judgment should be granted; (2) Ortiz's First Motion for Summary Judgment should be denied; and (3) Ortiz's Second Motion for Summary Judgment should be denied.

I. PROCEDURAL HISTORY

On June 5, 2003, John Lencyk ("Lencyk") filed his original complaint in this Court asserting causes of action arising under 28 U.S.C. § 1331, 28 U.S.C. § 1346, the Declaratory Judgment Act, 28 U.S.C. § 2201, et seq., and Federal Rule of Civil Procedure 65. This is a suit involving unpaid employment taxes.

Lencyk was an employee of M.E.E., Inc. ("MEE"), a Texas corporation that failed to deposit certain trust fund payroll taxes of its employees. By notice dated December 11, 2001, Lencyk was notified that a trust fund penalty was being assessed against him personally by the IRS. Lencyk commenced the present suit seeking a refund of taxes paid and a declaratory judgment. In its answer, IRS filed a third party complaint against Ortiz, the founder, principal owner, president, and chief executive officer of MEE. The Third Party Complaint was filed on August 11, 2003. A summons directed to Ortiz was issued by the District Clerk on November 17, 2003. On January 6, 2004, the summons and a copy of the Third Party Complaint were personally served on Ortiz. Under Federal Rule of Civil Procedure 12(a)(1)(A), Ortiz had until January 26, 2004 to file an answer or other responsive pleading. Ortiz, however, did not file any timely responsive pleading.

On February 13, 2004, IRS filed its Motion for Entry of Default and Default Judgment after Ortiz failed to plead or otherwise defend as required by the Federal Rules of Civil Procedure. Default was entered by the District Clerk that same day.

On June 9, 2004, prior to the Court's final determination regarding IRS's Motion for Default Judgment-and 135 days after the proper filing deadline-Ortiz submitted his Answer to IRS's Complaint, along with a motion requesting an extension of time to file an answer and a motion seeking to set aside the entry of default. IRS did not oppose Ortiz's motion. The Court granted Ortiz's request.

On October 4, 2004, Lencyk and the IRS notified the Court that they had reached a settlement agreement. Consequently, on October 20, 2004, the Court entered an order granting dismissal of the pending claims between Lencyk and IRS. On the other hand, unable to settle their claims, Ortiz and IRS each submitted the present cross-motions for summary judgment.

II. FACTUAL BACKGROUND

Ortiz founded MEE in 1987 and served as its "principal owner, president, and chief executive officer throughout its history." Ortiz Aff. p. 1.

At his deposition, Ortiz referred to MEE as "My company" and said that he was its "number one guy." Ortiz Depo. P. 9, 17. Ortiz owned 91% of MEE's stock. Id. at 10. Ortiz received the largest salary, and would personally guarantee loans for MEE. Id. at 13, 29 & 39. Further, Ortiz did the hiring and firing of top management, and had the authority to determine the company's financial policy. Id. at 19, 28.

Ortiz signed three IRS Forms 941, Employer's Quarterly Tax Return for MEE. Ortiz Depo. P. 45. Two of these tax returns reflected a balance of tax due. Id.

Sometime in 1999,1 two IRS agents, Ms. Kelly Heick ("Heick") and Ms. Grace Torres ("Torres"), advised Ortiz that he was personally liable for the trust fund portion of the unpaid payroll taxes of MEE. Ruben Apodaca ("Apodaca"), MEE's Certified Public Accountant advised Ortiz that Heick believed he could be found personally liable for the trust fund portion of MEE's payroll tax liabilities. Apodaca Aff. ¶ 5. Ortiz advised Heick that he would borrow money and pay it to the IRS for the trust fund portion that he could be personally liable for. Ortiz Summ. J. Aff. ¶ 6. He personally borrowed approximately $250,000 from Hector Delgado ("Delgado"). Id. ¶ 5. As a condition of the loan, Delgado required Ortiz to retain the services of Marcus Saenz ("Saenz"), a certified public accountant and tax specialist. Ortiz Depo. p. 27.

Ortiz deposited the sum of approximately $250,000 into an unspecified checking account, and wrote several checks to the IRS which were delivered to Saenz.2 Ortiz Depo. p. 21. Apodaca instructed MEE's bookkeeper to write the trust fund designation on the face of the checks. Apodaca Aff. ¶ 6. However, Saenz told the bookkeeper that it was not necessary to write the trust fund designation on the checks because he was going to deliver them personally to Heick and because he would make sure that they were properly designated. Id. Saenz provided the checks to the IRS, but he made no payment designations. Ortiz Depo. p. 22.

On March 18, 2002, a delegate of the Secretary of the Treasury made assessment against, and gave notice and demand, for payment thereof, to Ortiz, for a total of $38,604.84, such amount representing Ortiz's liability under 26 U.S.C. § 6672 for unpaid employment taxes for the fourth quarter of 1998 for MEE. See IRS Third Party Compl. Ex. 4.

On April 15, 2002, a delegate of the Secretary of the Treasury made assessment against, and gave notice and demand, for payment thereof, to Ortiz, for a total of $57,401.48, such amount representing Ortiz's liability under 26 U.S.C. § 6672 for unpaid employment taxes for the first quarter of 1999 for MEE. See IRS Third Party Compl. Ex. 5.

On April 15, 2002, a delegate of the Secretary of the Treasury made assessment against, and gave notice and demand, for payment thereof, to Ortiz for a total of $2,285.28, such amount representing Ortiz's liability under 26 U.S.C. § 6672 for unpaid employment taxes for the first quarter of 2001 for MEE. See IRS Third Party Compl. Ex 6.

The IRS concedes that, to date, Mr. Ortiz has had credits applied towards this liability in the amount of $9,469.00. Thus, the total amount in controversy is $89,597.26, plus interest and all statutory additions therein provided by the law.

To date, Ortiz has neglected, failed, and refused to pay the full amount of the assessments, and there remains due on the assessments a total amount of $89,597.26 plus interest and all statutory additions.

III. LEGAL STANDARD

Federal Rule of Civil Procedure 56(c) mandates summary judgment "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." The party seeking summary judgment bears the initial burden of informing the court of the basis for its motion and identifying the parts of the record that demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Although the movant must "`demonstrate the absence of a genuine issue of material fact,' [it] need not negate the elements of the non-movant's case." Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir.1994) (citing Celotex, 477 U.S. at 323, 106 S.Ct. 2548) (emphasis in original). A fact is "material" if its resolution in favor of one party might affect the outcome of the suit under the governing law. See Anderson v. Liberty Lobby, 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A dispute about a material fact is "genuine" if the evidence indicates that a reasonable fact-finder could find in favor of the non-moving party. See id.

Since the moving party has the burden of proof, evidence is construed in favor of the opponent and the non-movant is given the benefit of all favorable inferences. See Reid v. State Farm Mut. Auto. Ins. Co., 784 F.2d 577, 578 (5th Cir.1986). When the moving party has properly supported his summary judgment motion, the non-moving party must come forward with "significant probative evidence" showing that there is an issue regarding material facts. Ferguson v. Nat'l. Broad, Co., Inc., 584 F.2d 111, 114 (5th Cir.1978). If the movant satisfies its initial burden, the non-movant must come forward with "specific facts showing that there is a genuine issue for trial." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) (citing Fed. R. Civ. P. 56(e) (emphasis omitted)). In other words, "the non-movant must adduce evidence which creates a material fact issue concerning each of the essential elements of its case for which it will bear the burden of proof at trial." Abbott v. Equity Group, Inc., 2 F.3d 613,...

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