Olszonicki v. US
| Decision Date | 12 May 1994 |
| Docket Number | No. 1:91cv2096.,1:91cv2096. |
| Citation | 867 F. Supp. 610 |
| Parties | Paul OLSZONICKI, et al., Plaintiffs, v. UNITED STATES of America, Defendant. |
| Court | U.S. District Court — Northern District of Ohio |
Daniel R. McCarthy, Charles P. Royer, Mark B. Cohn, McCarthy, Lebit, Crystal, and Heiman, Cleveland, OH, for plaintiffs.
Annette G. Butler, Asst. U.S. Atty., Cleveland, OH, Thomas R. Jones, U.S. Dept. of Justice, Tax Div., Washington, DC, for defendant.
Before this Court are Plaintiffs' Motion for Summary Judgment and Defendant's Memorandum in Opposition to Plaintiffs' Motion for Summary Judgment. For the foregoing reasons this Court grants Plaintiffs' Motion for Summary Judgment.
Plaintiff, Paul Olszonicki graduated from high school in 1933. He has no other formal education (Depo. of Paul Olszonicki at 7). Plaintiff Ann Olszonicki was forced to quit school before completing the tenth grade, and she has no other formal education (Depo. of Ann Olszonicki at 4). Paul Olszonicki was diagnosed with diabetes in 1961 or 1962 (Depo. of Paul Olszonicki at 12). This condition impaired his eyesight, resulting in laser treatments and the use of a magnifying glass (Id. at 19). He also suffers from a loss of hearing (Id. at 14).
In 1946, Plaintiffs went into business with Mr. Olszonicki's brother, opening Olson's Market, a grocery store. They sold the grocery store in 1963 and purchased a bar, Hank's Cafe, seven apartments and four stores in East Cleveland. They sold the bar in 1975 and the remaining property in 1978 (Id. at 8-11).
In 1963, on the recommendation of their attorney, Plaintiffs hired Anthony Novak to prepare and file their business and personal tax returns. Novak was registered as a certified public accountant in the State of Ohio from September 8, 1960 until his death on March 14, 1992, and specialized in liquor owners' taxes (Id. at 16). Novak primarily dealt with Mr. Olszonicki since Mrs. Olszonicki was not involved in the day to day operation of the business. Due to Mr. Olszonicki's poor eyesight and his trust for Novak, he signed the documents Novak told him to sign (Id. at 18-19). Mrs. Olszonicki generally signed documents without reading them because she also trusted Novak (Depo. of Ann Olszonicki at 10).
Between 1963 and 1978, while relying on Novak as their accountant, Plaintiffs did not experience any problems with their federal tax returns.1 In 1975, Plaintiffs sold their interest in Hank's Cafe, and in 1978 they sold the apartments and stores. At that time, Social Security benefits were Plaintiffs' only source of income, other than the gain from the sale of property. In 1979, Mr. and Mrs. Olszonicki went to the office of the Internal Revenue Service, where they were told that they were not required to file tax returns since they did not have enough earned income (Depo. of Paul Olszonicki at 19-20).
Paul Olszonicki was hospitalized in 1977 due to a foot ailment. While recuperating, he entered into a conversation with a gentleman who was knowledgeable about gold and silver and who gave Plaintiff several investment tips (Id. at 21-22). Paul Olszonicki relied on the advice, and between 1975 and 1980 invested nearly $75,000 in silver and silver bullion through a Canadian investment company with ties to the Foreign Commerce Bank in Switzerland. (Depo. Paul Olszonicki at 23). In 1980, Plaintiffs sold their investment in silver for $1,315,000, generating a profit of $1,235,000 (Id. at 25). Novak arranged for the transfer of the proceeds from the sale of the silver to Germany, and represented to Plaintiffs that $84,000 was paid as tax in Germany in connection with the transaction. On the advice of Novak, Plaintiffs agreed to lend $1,000,000 to Novak's cousins Kazimir and Sonja Mavko in Germany in return for two cognovit notes yielding eight percent interest (Id. at 28). The cognovit notes were signed by Anthony Novak on behalf of Inter-Mercat Company. One note was for $750,000 and the other was for $250,000 (Id. at 36-38).
Novak assured Plaintiffs they would be paying German tax and would not be required to pay federal income tax in the United States (Depo. of Paul Olszonicki at 39). Each year from 1980 until 1987, Novak delivered nearly $50,000 in cash to Plaintiffs as payment of interest on the million dollar loan. He told them that taxes had been withheld, and that no United States federal tax was due (Depo. of Paul Olszonicki at 39-40).
In 1986, Plaintiff Mrs. Olszonicki contacted her niece, who is an attorney, and told her of Plaintiffs' investment and that Plaintiffs were not filing United States federal tax returns. The niece suggested Plaintiffs contact their attorney, who in turn recommended Daniel R. McCarthy, a Cleveland attorney specializing in federal income taxation. Upon the advice of McCarthy, Plaintiffs filed amended returns (Depo. of Paul Olszonicki at 53). In doing so, Plaintiffs paid $1,106,153 in tax, interest and penalties to the United States government.
On June 28, 1990, Plaintiffs brought an action under 28 U.S.C. § 1340 for a refund of penalties paid by them for the years 1980 through 1987, totalling $198,670.68 plus interest, attorney fees and costs.
On April 6, 1993, Plaintiffs filed a Motion for Summary Judgment pursuant to Federal Rule 56 in which they contend that they reasonably relied on the advice of Novak that they were not required to file federal income tax returns.
In its Memorandum in Opposition to Plaintiffs' Motion for Summary Judgment, Defendant United States argues that the motion must be overruled because the case hinges on the credibility of Paul Olszonicki, and that his credibility is an issue of fact which precludes the granting of summary judgment. Additionally, Defendant avers that Plaintiffs' motion should be denied pursuant to Rule 56(f) because Defendant sought additional affidavits to resolve the issue of the Olszonicki's credibility. On March 3, 1993, Tom Jones, an attorney with the United States Department of Justice, spoke to Kazimir Mavko who stated that he would respond in writing if the United States sent him a letter (Declaration of Thomas R. Jones ¶ 10). The United States wrote to Kazimir Mavko on March 9, 1993 requesting information about the business and assured the Court that the return letter from Germany would arrive by the 19th of May (Memorandum in Opposition to Plaintiff's Motion for Summary Judgment at 5). Defendant, however, failed to obtain an affidavit from Sonja or Kazimir Mavko prior to the oral argument held on December 16, 1993, and has failed to offer any additional evidence that would support its contention that Paul Olszonicki lacks credibility (Tr. 12/16/93 Hearing on Motion for Summary Judgment).
The granting of summary judgment is proper "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." Fed.R.Civ.P. 56(c); see Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). A dispute about a material fact is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). "Material facts" are "facts that might affect the outcome of the suit under the governing law." Id. In considering a motion for summary judgment, the court must view all facts and inferences in a light most favorable to the nonmoving party. Sims v. Memphis Processors, Inc., 926 F.2d 524, 526-27 (6th Cir.1991).
"The moving party has the burden of showing the absence of any genuine disputes over facts which, under the substantive law governing the issue, might affect the outcome of the action." Harris v. Adams, 873 F.2d 929, 931 (6th Cir.1989) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). "If this burden is met, the nonmoving party must present `significant probative evidence' showing that genuine, material factual disputes remain to defeat summary judgment." Sims, 926 F.2d at 526 (citations omitted). The nonmoving party is required "to go beyond the pleadings and by his own affidavits, or by the `depositions, answers to interrogatories, and admissions on file,' designate `specific facts showing that there is a genuine issue for trial.'" Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986) (quoting Fed.R.Civ.P. 56(e)).
The substantive law determines which facts are material. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). Here, Section 6651 of the Internal Revenue Code sets forth the penalties and the exceptions to the penalties for failing to file a return or to pay income tax. 26 U.S.C. § 6651(a). Section 6651(a) states in pertinent part:
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