McClendon v. United States
| Decision Date | 22 January 2019 |
| Docket Number | CIVIL ACTION NO. H-15-2664 |
| Parties | ROBERT L. MCCLENDON, Plaintiff, v. UNITED STATES OF AMERICA, Defendant. |
| Court | U.S. District Court — Southern District of Texas |
In this tax-refund case, the government asserted a counterclaim against Richard T. Stephen, Jr., for the unpaid balance of a tax assessment levied against him and Dr. Robert L. McClendon. (Docket Entry Nos. 15, 16, 17). The government moved for summary judgment on the counterclaim. (Docket Entry No. 66). Stephen has not responded. Based on the pleadings, motion, record, and applicable law, the government's motion is granted. The reasons are explained in detail below.
The facts are largely undisputed. Dr. McClendon founded Family Practice Associates of Houston, a professional medical association, in 1979. (Id. at 1, 3). Stephen was the chief financial officer of Family Practice from 1995 to 2009. (Docket Entry No. 66-4 at 9: 12-20, 31: 8-9). Stephen ran Family Practice's day-to-day operations, managed Family Practice's finances, controlled the company's bank accounts, was responsible for preparing and filing payroll-tax returns, maintained Family Practice's books and records, paid creditors and determined the order of payment, and was authorized to hire and fire employees. (Docket Entry No. 66-3; Docket Entry No. 66-4 at 9-10, 14-16, 19-20, 23, 40; Docket Entry No. 66-6 at 2-5)
Family Practice began to accumulate tax debt in 2003. (Docket Entry No. 66-4 at 10: 10-16). By 2009, Family Practice owed over $11 million in employee payroll taxes. (Docket Entry No. 66 at 1). Stephen knew of Family Practice's failure to file corporate tax returns or to make federal-tax deposits. (Docket Entry No. 66-4 at 10: 5-22, 16: 8-18; Docket Entry No. 66-6 at 2-3). From 2003 to 2009, Stephen paid Family Practice's creditors, other than the government, after learning of the unpaid tax debt. (Docket Entry No. 66-4 at 19: 9-23; Docket Entry No. 66-6 at 2).
In 2011, the Internal Revenue Service assessed $4,323,343.70 in trust-fund-recovery penalties against Stephen under 26 U.S.C. § 6672, alleging that he was liable for Family Practice's failure to pay federal payroll taxes from July 2003 to December 2008.1 (Docket Entry No. 66 at 1). The government also assessed penalties against Dr. McClendon who, after paying a nominal portion of the assessment, sued the government for a refund of the amount paid and an abatement of the penalties. (Docket Entry No. 1). The government counterclaimed against Dr. McClendon and Stephen to recover the assessments. (Docket Entry Nos. 5, 17).
After discovery, the government moved for summary judgment on the counterclaim against Stephen. (Docket Entry No. 66). The government argues that the undisputed facts show that Stephen is liable under § 6672 to pay the trust-fund-recovery penalties because he was a "responsible person" who "wilfully" failed to deposit Family Practice's payroll taxes. (Id. at 2-3). Stephen failed to respond to the government's motion.
"Summary judgment is appropriate only if there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Vann v. City of Southaven, Miss., 884 F.3d 307, 309 (5th Cir. 2018) (quotation omitted); see also FED. R. CIV. P. 56(a). "A genuine dispute of material fact exists when the 'evidence is such that a reasonable jury could return a verdict for the nonmoving party.'" Burrell v. Prudential Ins. Co. of Am., 820 F.3d 132, 136 (5th Cir. 2016) (quoting Savant v. APM Terminals, 776 F.3d 285, 288 (5th Cir. 2014)). The moving party "always bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of [the record] which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).
"Where the non-movant bears the burden of proof at trial, 'the movant may merely point to the absence of evidence and thereby shift to the non-movant the burden of demonstrating . . . that there is an issue of material fact warranting trial.'" Kim v. Hospira, Inc., 709 F. App'x 287, 288 (5th Cir. 2018) (quoting Nola Spice Designs, L.L.C. v. Haydel Enters., Inc., 783 F.3d 527, 536 (5th Cir. 2015)). While the party moving for summary judgment must demonstrate the absence of a genuine issue of material fact, it does not need to negate the elements of the nonmovant's case. Austin v. Kroger Tex., L.P., 864 F.3d 326, 335 (5th Cir. 2017). A fact is material if "its resolution could affect the outcome of the action." Aly v. City of Lake Jackson, 605 F. App'x 260, 262 (5th Cir. 2015) ). "If the moving party fails to meet [its] initial burden, the motion [for summary judgment] must be denied, regardless of the nonmovant's response." Pioneer Expl., L.L.C. v. Steadfast Ins. Co., 767F.3d 503, 511 (5th Cir. 2014) (quoting Kee v. City of Rowlett, Tex., 247 F.3d 206, 210 (5th Cir. 2001)).
"When the moving party has met its Rule 56(c) burden, the nonmoving party cannot survive a summary judgment motion by resting on the mere allegations of its pleadings." Duffie v. United States, 600 F.3d 362, 371 (5th Cir. 2010); see Forsyth v. Barr, 19 F.3d 1527, 1533 (5th Cir. 1994) (). The nonmovant must identify specific evidence in the record and articulate how that evidence supports that party's claim. Willis v. Cleco Corp., 749 F.3d 314, 317 (5th Cir. 2014). "This burden will not be satisfied by 'some metaphysical doubt as to the material facts, by conclusory allegations, by unsubstantiated assertions, or by only a scintilla of evidence.'" Jurach v. Safety Vision, LLC, 642 F. App'x 313, 317 (5th Cir. 2016) (quoting Boudreaux v. Swift Transp. Co., 402 F.3d 536, 540 (5th Cir. 2005)). The court draws all reasonable inferences in the light most favorable to the nonmoving party. In re Katrina Canal Breaches Litig., 495 F.3d 191, 205-06 (5th Cir. 2007).
Businesses must withhold from employees' earnings the amount each employee owes for federal social security and income taxes. 26 U.S.C. §§ 3102(a), 3402(a). Employers hold the funds "in trust" for the government. 26 U.S.C. § 7501(a). "Such funds, which are remitted to the government on a quarterly basis, are for the exclusive use of the United States and are not availableto cover operational or business expenses." Verret v. United States, 542 F. Supp. 2d 526, 533 (E.D. Tex. 2008) (citing 26 U.S.C. §§ 3102(b), 3403, 7501(a)). "[T]he funds accumulated during the quarter can be a tempting source of ready cash to a failing corporation beleaguered by creditors." Slodov v. United States, 436 U.S. 238, 243 (1978). "Failing to withhold or remit the funds can result in civil and criminal penalties." McClendon v. United States, 892 F.3d 775, 782 (5th Cir. 2018) (citing 26 U.S.C. §§ 6672, 7202)).
The government seeks to recover the penalties assessed against Stephen under § 6672, which provides:
Any person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such tax, or truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, 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). Instead of punishing the business entity, § 6672 penalizes "officer[s] or employee[s who are] under a duty to" collect, account for, and pay the tax. 26 U.S.C. § 6671(b). To establish liability, the government must prove that the officer or employee "is a 'responsible person' who 'willfully' failed to pay over the withheld taxes." Barnett v. I.R.S., 988 F.2d 1449, 1453 (5th Cir. 1993) (quoting Turnbull v. United States, 929 F.2d 173, 178 (5th Cir. 1991)).
"In § 6672(a) cases, once the [g]overnment offers an assessment into evidence, the burden of proof is on the taxpayer to disprove his responsible-person status or willfulness." Id. (citing Morgan v. United States, 937 F.2d 281, 285 (5th Cir. 1991)). "This rule applies when," as here, "the [g]overnment [seeks] to convert the assessment into a judgment." McClendon, 892 F.3d at 783.
The Fifth Circuit "generally takes a broad view of who is a responsible person under §6672." Gustin v. I.R.S., 876 F.2d 485, 491 (5th Cir. 1989). Responsibility "is determined by looking to one's status within a corporation—that is, one's duty and authority to withhold and pay taxes." Barnett, 988 F.2d at 1454. It "does not require knowledge that one has that duty and authority." Id. Because responsibility does not turn on actual knowledge, an individual "may be a responsible person . . . even though he does not know that withholding taxes have not been paid, and he does not cease to be a responsible person merely by delegating the responsibility to others." Id. at 1454-55. Indicia of responsible-person status, none of which is dispositive, include whether the individual: (1) "is an officer or member of the board of directors"; (2) "owns a substantial amount of stock in the company"; (3) "manages the day-to-day operations of the business"; (4) "has the authority to hire or fire employees"; (5) "makes decisions as to the disbursements of funds and payment of creditors"; and (6) "possesses the authority to sign company checks." Id. at 1455.
While one individual might have more power than other directors, officers, or employees to withhold and pay taxes, "[t]here may be—indeed, there usually are—multiple responsible persons in any company." Id. The question is "whether the person had the effective power to pay the taxes." McClendon, ...
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