Logan v. United States, Case No. 3:10 CV 1712
| Decision Date | 20 August 2012 |
| Docket Number | Case No. 3:10 CV 1712 |
| Parties | Thomas F. Logan, Jr., Plaintiff and Counterclaim Defendant, v. United States of America, Defendant and Counterclaim Plaintiff, v. John C. Zam, Counterclaim Defendant. |
| Court | U.S. District Court — Northern District of Ohio |
Plaintiff Thomas F. Logan, Jr., seeks the return of monies allegedly erroneously and illegally collected by the Internal Revenue Service and abatement of assessment of his tax liability as set forth by the Internal Revenue Service. The parties consented to have the undersigned Magistrate adjudicate all further proceedings in this matter and enter judgment pursuant to 28 U.S.C. § 636(c) and FED.R.CIV.P. 73 (Docket No. 22). Pending is the United States' Motion for Summary Judgment (Docket No. 35), filed on February 17, 2012, Thomas Logan's Response (Docket No. 40), filed on March 25, 2012, and the United States' Reply (Docket No. 41), filed on April 5, 2012.
For the reasons that follow, the Magistrate grants Defendant's Motion for Summary Judgment.
II. FACTUAL BACKGROUND.
Plaintiff Thomas F. Logan, Jr. ("Plaintiff") and Counterclaim Defendant John C. Zam ("Zam") founded X-L Enterprises, Inc. ("X-L" or "the Company") on July 31, 1991 (Docket No. 35, Attachment 5). Throughout its tenure, X-L was engaged in the heating, ventilation, and air conditioning business ("HVAC"), installing HVAC systems in commercial properties, light industrial buildings, schools, and offices (Docket Nos. 35, Attachment 5, p. 3 of 8; Attachment 6, p. 12 of 30). Initially, X-L consisted of only two shareholders, Plaintiff and Zam, who each held a one-half interest in the Company (Docket No. 35, Attachment 6, p. 6 of 30). The parties also established a second company, Gazelle Leasing, Inc. ("Gazelle"), whose sole purpose was to own the building that housed X-L, as well as all of X-L's vehicles and fabrication equipment (Docket Nos. 35, Attachment 6, p. 10 of 30; Attachment 7, p. 26-27 of 89).1 In addition to being the only shareholders, Plaintiff and Zam were also the only officers of X-L and Gazelle; Plaintiff served as both Vice President and Treasurer and Zam served as President and Secretary (Docket No. 35, Attachment 7, p. 16 of 89). Both Plaintiff and Zam occasionally received dividend payments from X-L (Docket No. 35, Attachment 7, p. 28 of 89).
From X-L's inception, Plaintiff and Zam had different day-to-day responsibilities: Plaintiff was in charge of fabricating the material used in the HVAC units, his primary workspace being X-L's workshop (Docket Nos. 35, Attachment 6, p. 17-18 of 30; Attachment 7, p. 17 of 89). Zam was in chargeof HVAC installation and transacting company business, spending most of his time in the office (Docket Nos. 35, Attachment 6, p. 20 of 30; Attachment 7, p. 17 of 89). Both parties had the ability to sign checks (Docket Nos. 35, Attachment 6, p. 18 of 30; Attachment 7, p. 13-14 of 89), co-sign or guarantee loans on behalf of X-L (Docket No. 35, Attachment 6, p. 8 of 30), access the Company checkbook (Docket No. 35, Attachment 6, pp. 17-18 of 30), and hire and fire employees (Docket No. 35, Attachment 7, p. 16 of 89). Despite these shared abilities, Plaintiff alleges, both in his original Complaint and in his Response to Defendant's motion for summary judgment, it was Zam who had primary control of X-L's finances and financial policies, including payment and filing of payroll tax returns (Docket No. 35, Attachment 6, pp. 7, 8, 23 of 30). Zam does not dispute this claim (Docket No. 35, Attachment 7, p. 60 of 89; Docket No. 40, Attachment 1).
During the years 2005 to 2008, X-L failed to pay federal withholding taxes on behalf of its employees (Docket No. 1, Attachment 1). Specifically, X-L failed to turn over funds from the following tax quarters: period ending June 30, 2005, period ending September 30, 2006, period ending December 31, 2006, period ending March 31, 2007, period ending June 30, 2007, period ending September 30, 2007, and period ending December 31, 2007 (Docket No. 1, Attachment 1). Plaintiff denies having any knowledge of X-L's failure to pay its obligation prior to October 2007, at which point Plaintiff alleges he discovered X-L's failure to make one quarterly tax payment (Docket No. 35, Attachment 6, p. 13 of 30).
In April 2008, the Internal Revenue Service ("IRS") sent Revenue Officer Pamela Amburgy out to speak with Plaintiff and Zam regarding the unpaid taxes (Docket Nos. 35, Attachment 6, p. 23 of 30; Attachment 7, pp. 31-32 of 89). The officer informed both men of their potential personal liability if the debt remained unpaid (Docket Nos. 35, Attachment 2, p. 1 of 3; Attachment 7, pp. 31-32 of 89). It was only after this meeting that Plaintiff admits to having knowledge of the full extent of X-L's tax liability(Docket No. 35, Attachment 6, p. 23 of 30). Both Plaintiff and Zam were subsequently repeatedly notified via mail of X-L's failure to pay (Docket No. 35, Attachment 6, p. 23 of 30). The taxes remained unpaid. It is Plaintiff's allegation that he trusted Zam to correct the situation (Docket No. 35, Attachment 6, pp. 23-24, 27 of 30). Pursuant to 26 U.S.C. § 6672, both Plaintiff and Zam were assessed personal liability in the balance amount of $219,259.63 and $212,904.50, respectively (Docket No. 17, p. 7 of 11).
Plaintiff officially retired from X-L on June 27, 2008 (Docket No. 35, Attachment 6, pp. 12-13 of 30), but maintained his ownership in the Company (Docket No. 35, Attachment 7, p. 35 of 89). The Company continued to operate after Plaintiff's departure (Docket No. 35, Attachment 6, p. 13 of 30). X-L stopped taking HVAC jobs sometime in 2009 (Docket No. 35, Attachment 6, p. 13 of 30). In early 2010, Zam attempted to start another HVAC business, Skyway Sheet Metal ("Skyway") (Docket No. 35, Attachment 7, p. 38 of 89). Skyway performed only one job and failed to get off the ground (Docket No. 35, Attachment 7, p. 37 of 89).
Sometime during 2010, Plaintiff alleges he discovered Zam had been scavenging wire and stainless steel equipment from X-L's building and selling the materials for scrap copper (Docket No. 35, Attachment 6, p. 14 of 30). Plaintiff also alleges he had difficulty contacting Zam and had been locked out of X-L's building (Docket No. 35, Attachment 6, pp. 14-15 of 30). In September 2010, when Plaintiff finally managed to gain access to the building, he conducted a sale and sold almost all of X-L's assets (Docket No. 35, Attachment 6, p. 14 of 30). Proceeds from that sale went into a fund to maintain the mortgage payments on the Company's building (Docket No. 35, Attachment 6, p. 14 of 30). In the fall of 2010, Plaintiff began renting X-L's building to Ramsey Restorations (Docket No. 35, Attachment 6, p. 13-14 of 30).
Since January 2011, Plaintiff has been making monthly payments to the IRS for the trust fundrecovery penalty via deductions in his monthly Social Security check (Docket No. 35, Attachment 6, pp. 26-27 of 30). Neither Plaintiff nor Zam has made any additional payments to the IRS (Docket No. 35, Attachment 6, p. 27 of 30). On January 13, 2011, Zam gave Plaintiff full authority to wind up the affairs of both X-L and Gazelle (Docket Nos. 35, Attachment 6, p. 10 of 30; Attachment 7, p. 13 of 89).
III. PROCEDURAL BACKGROUND
Plaintiff was assessed personal liability for the outstanding tax debt of X-L in the amount of $231,243.65 for the periods ending June 2005, September and December 2006, and March, June, September, and December 2007 (Docket No. 1). Plaintiff made payments on this debt in the amount of $2,894.30 (Docket No. 1). At some point after this initial payment, Plaintiff requested a refund from the IRS in the amount of $2,894.30 (Docket No. 1). This request was denied on February 4, 2009 (Docket No. 1, Attachment 1). Plaintiff subsequently appealed this denial to the IRS Appeals Office (Docket No. 1, Attachment 1). His appeal was denied given "[t]here [was] sufficient evidence to hold [Plaintiff] fully responsible and willful for the unpaid trust fund taxes for XL Enterprises Inc" (Docket No. 1, Attachment 1).
Plaintiff filed a Civil Complaint on August 5, 2010, requesting: (1) a return of monies erroneously and illegally collected by the IRS; and (2) to set aside the deficiency determined by the IRS by finding Plaintiff not a responsible or willful party in the payment of payroll taxes for X-L (Docket No. 1). Defendant filed its Answer on March 11, 2011 (Docket No. 14). Shortly thereafter, on March 15, 2011, both parties requested a continuance of a Case Management Conference so that they could have adequate time to determine whether or not this Court had jurisdiction over the matters listed in Plaintiff's Complaint (Docket No. 15). On April 1, 2011, Defendant filed its Amended Answer admitting: (1) Plaintiff made certain payments to the IRS in an attempt to satisfy X-L'soutstanding tax obligation; (2) Plaintiff requested a refund of these payments; and (3) Plaintiff was denied a refund, both initially and on appeal (Docket No. 17). Defendant denied: (1) the facts upon which the Plaintiff relied as the basis for his Complaint; and (2) this Court has jurisdiction of the matter pursuant to 28 U.S.C. § 1346(a)(1) (Docket No. 17).
In addition to its Answer, Defendant filed a Counterclaim against Plaintiff, joining his business partner Zam as a defendant (Docket No. 17). The government sought: (1) a judgment dismissing Plaintiff's Complaint; (2) a judgment in favor of the government in the amount of $219,259.63 and $212,904.50 against Plaintiff and Zam, respectively; (3) all costs associated with the action; and (4) any statutory additions accruing after February 21, 2011, including interest pursuant to 26 U.S.C. §§ 6601, 6621, and 6622, and 28 U.S.C. § 1961(c) (Docket No. 17).
On April 21, 2011, Plaintiff submitted his Answer to Defendant's Counterclaim, essentially denying all allegations set forth by the government (Docket No. 20). Pla...
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