Meredith Corp. v. United States

• Decision Date: 17 September 2019
• Docket Number: 4:17-cv-00385
• Citation: 405 F.Supp.3d 795
• Parties: MEREDITH CORPORATION, Plaintiff, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — Southern District of Iowa

405 F.Supp.3d 795

MEREDITH CORPORATION, Plaintiff,

v.UNITED STATES of America, Defendant.

4:17-cv-00385

United States District Court, S.D. Iowa, Central Division.

Signed September 17, 2019

Stephen H. Locher, Kelsey J. Knowles, Belin McCormick, P.C., Des Moines, IA, Robert J. Kovacev, Norton Rose Fulbright U.S. LLP, Caitlin Tharp, Lisa M. Zarlenga, Steptoe & Johnson, Washington, DC, for Plaintiff.

Martin Morris Shoemaker, Gregory E Van Hoey, U.S. Dept. of Justice Civil Tax Division, Washington, DC, for Defendant.

ORDER DENYING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT

ROBERT W. PRATT, Judge Before the Court is Plaintiff Meredith Corporation's Motion for Summary Judgment, filed on May 24, 2019. ECF No. 35. The Government filed its resistance to Plaintiff's Motion on June 14, ECF No. 40, and Plaintiff filed its Reply on June 21, ECF No. 44. This Court heard oral argument on the motion on August 16. See ECF No. 48. Therefore, the matter is fully submitted.

I. FACTUAL AND PROCEDURAL BACKGROUND

Founded in 1902, Plaintiff is a publicly held company headquartered in Des Moines, Iowa. ECF Nos. 1 ¶ 2, 35-3 at 26. Plaintiff publishes magazines, books, and other marketing materials, including Better Homes and Gardens magazine (collectively referred to as publications). ECF Nos. 1 ¶ 14, 35-3 at 27. Plaintiff earns revenue by selling advertising space in its publications and by selling the finished publications to customers through subscriptions or newsstands. ECF No. 35-2 ¶ 4–5. In tax years 2006 to 2012, Plaintiff claimed a section 199 tax deduction related to this revenue. ECF No. 35-3 at 32; see 26 U.S.C. § 199 (repealed 2017).

The process from conception to sale for Plaintiff's publications involves numerous stages. ECF No. 35-1 at 7. First, Plaintiff creates the content.¹ Id. ; ECF No. 35-2 ¶ 29. Next, an issue enters the prepress process, which is the window of time between content creation and printing. ECF No. 35-3 at 45. During this stage of publishing, Plaintiff's Prepress Department creates digital pages of the magazine. Id. These pages, containing the content and layout of the publications, are sent as a file to the printers. ECF No. 35-1 at 7. Then, the printers create the cylinders and plates used to actually print the materials and run the printing press during the printing process. ECF No. 40-3 at 59, 169. During this stage, both Plaintiff and the printers remain involved in quality control. ECF No. 35-3 at 46–49.

In 1990, Plaintiff began contracting with third-party printers for the printing of its publications. ECF No. 35-2 ¶ 10; ECF No. 35-3 at 76. From 2006 to 2012, Plaintiff's primary printers contracted to print its publications were R.R. Donnelly & Sons, Inc. (RRD), Quad/Graphics, Inc. (Quad), and Brown Printing Company (Brown). ECF No. 35-3 at 71–72. Illinois law governed the RRD agreements, while New York law governed the Quad and Brown agreements. ECF No. 35-3 at 130, 162, 193; ECF No. 35-4 at 24, 73, 94. In 2011, RRD and Brown entered new agreements with Plaintiff, and in 2012 Quad began a new agreement with Plaintiff. ECF No. 35-4 at 27, 76. Plaintiff also used smaller printers for some of its integrated marketing materials. ECF No. 35-3 at 85.

Allegedly, negotiation over the terms of these agreements took place, but Plaintiff contends that some of the language was "boilerplate." Id. at 90; ECF No. 40-3 at 24, 32, 49. Regardless, the contracts included various tasks and raw materials to be provided by the printers, including ink and binding, at a price per occurrence or price per X number of copies, subject to price adjustments based on specified indices or negotiated price adjustments due to technology changes. See ECF No. 35-2 Att. A at 41–46. They also specified the printer should carry insurance on all Plaintiff's property, completed work, and work in process. Id. at 41–42. The early agreements specified that invoiced magazines and paper stored by the printer would remain Plaintiff's property but that files, proofs, plates, and work in process would be the printer's property. Id. They also contained risk-of-loss provisions that passed the risk from the printers to Plaintiff f.o.b the printer's plant and passage-of-title provisions that transferred title to Plaintiff at the earlier of shipment (f.o.b. printer's plant) or date of final invoicing. Id. at 42–43. In 2011 and 2012, Plaintiff entered into new contracts with the three printers. ECF No. 35-3 at 166; ECF No. 35-4 at 27, 76. These contracts no longer stated that work-in-process inventory was the printers' property, and the 2012 Brown agreement explicitly stated they intended for Plaintiff to have the benefits and burdens of ownership for the section 199 deduction. ECF No. 35-4 at 91.

Plaintiff purchases and provides the paper for its publications. See ECF No. 35-2 ¶ 88, at 41–46. Plaintiff selects this paper and tests its quality. ECF No. 35-3 at 63-64. Plaintiff also assumes the quantity and quality risks associated with maintaining the supply of paper. ECF No. 35-4 at 98. The blank paper is owned by Plaintiff. ECF No. 35-2 at 41–46. There is debate over whether Plaintiff remained the owner of the paper throughout the printing process or not. ECF No. 40-1 at 22. The early RRD printing agreements specified that "paper stored by Printer for [Plaintiff]" remained Plaintiff's property while "work in process" remained the printer's property. See ECF No. 35 at 40. The print agreements do not contain amounts to be charged for the paper. ECF No. 35-4 at 100.

Plaintiff claimed a section 199 domestic production deduction for its publications in tax years 2006 to 2012. ECF No. 35-3 at 33-34. The deduction was in the amount of $2,269,273 in 2006;² $3,855,155 in 2007; $7,564,811 in 2008; $1,797,380 in 2009; $2,833,377 in 2010; $5,913,653 in 2011; and $1,511,571 in 2012 for a total deduction over the relevant taxable years of $25,745,220. Id. During that time period, one of the contracted printers also claimed the deduction. ECF No. 35-1 at 12 n.3. In 2016, the IRS issued Statutory Notices of Deficiency to Plaintiff for the 2006 through 2012 tax years. ECF No. 1 ¶ 37. The IRS disallowed the section 199 deduction because it believed Plaintiff did not have the benefits and burdens of production during the printing process and assessed additional tax in the amount of $12,164,383.41. ECF No. 1 ¶¶ 37–39. On September 21, 2016, Plaintiff paid the additional tax. ECF No. 1 ¶ 40. Then on April 26, 2017, Plaintiff filed claims for a refund of the additional amount paid. ECF No. 1 ¶ 41. Six months passed without IRS action on the refund claims, and then on October 30, 2017, Plaintiff filed its Complaint asserting the IRS adjustments were erroneous and therefore Plaintiff should be entitled to a refund. ECF No. 1 ¶¶ 1, 43.

II. SUMMARY JUDGMENT STANDARD

"[S]ummary judgment is an extreme remedy, and one which is not to be granted unless the movant has established his right to a judgment with such clarity as to leave no room for controversy and that the other party is not entitled to recover under any discernible circumstances." Robert Johnson Grain Co. v. Chem. Interchange Co. , 541 F.2d 207, 209 (8th Cir. 1976). The purpose of summary judgment is not "to cut litigants off from their right of trial by jury if they really have issues to try." Poller v. Columbia Broad. Sys., Inc. , 368 U.S. 464, 467, 82 S.Ct. 486, 7 L.Ed.2d 458 (1962) (quoting Sartor v. Arkansas Natural Gas Corp. , 321 U.S. 620, 627, 64 S.Ct. 724, 88 L.Ed. 967 (1944) ). Rather, it is designed to avoid "useless, expensive and time-consuming trials where there is actually no genuine, factual issue remaining to be tried." Anderson v. Viking Pump Div., Houdaille Indus., Inc. , 545 F.2d 1127, 1129 (8th Cir. 1976).

Rule 56(a) provides, "A party may move for summary judgment, identifying each claim or defense—or the part of each claim or defense—on which summary judgment is sought." Rule 56(a) mandates the entry of summary judgment upon motion after there has been adequate time for discovery "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Summary judgment is proper when the record, viewed in the light most favorable to the nonmoving party and giving that party the benefit of all reasonable inferences, shows there is no genuine issue of material fact and the moving party is therefore entitled to judgment as a matter of law. See Fed. R. Civ. P. 56(a) ; Matsushita Elec. Indus. Co. v. Zenith Radio Corp. , 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) ; Harlston v. McDonnell Douglas Corp. , 37 F.3d 379, 382 (8th Cir. 1994). A disputed issue is "genuine" when the evidence produced "is such that a reasonable jury could return a verdict for the nonmoving party." See Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A fact is considered "material" if it "might affect the outcome of the suit under the governing law." See id. "[T]he substantive law will identify which facts are material .... Factual disputes that are irrelevant or unnecessary will not be counted." Id.

"In considering a motion for summary judgment the court does not weigh the evidence, make credibility determinations, or attempt to discern the truth of any factual issue." Great Plains Real Estate Dev., L.L.C. v. Union Cent. Life Ins. Co. , 536 F.3d 939, 944 (8th Cir. 2008) (quoting Morris v. City of Chillicothe , 512 F.3d 1013, 1018 (8th Cir. 2008) ). Rather, the court only determines whether there are any disputed issues concerning the existence of material facts and, if so, whether those disputes are genuine. See Anderson , 477 U.S. at 251-52, 106 S.Ct. 2505 ; see also Wilson v. Myers , 823 F.2d 253, 256 (8th Cir. 1987) ("Summary judgment is not designed to weed out dubious claims, but to eliminate those claims with no basis in material fact."). Summary judgment is appropriately entered against a party who has...