Prompt Staffing, Inc. v. United States
| Decision Date | 08 May 2018 |
| Docket Number | Case No 5:17-cv-00542-SVW-JEM,2:17-cv-01696-SVW-JEM |
| Court | U.S. District Court — Central District of California |
| Parties | PROMPT STAFFING, INC. et al. v. UNITED STATES of America; 24 Hour Staffing Inc. et al. v. United States of America |
Joseph E. Mudd, Freeman Freeman and Smiley LLP, Irvine, CA, for Prompt Staffing, Inc. et al
Charles W. Parker, Benjamin L. Tompkins, Valerie L. Makarewicz, AUSA—United States Attorney Office, Los Angeles, CA, for United States of America.
Proceedings: FINDINGS OF FACT AND CONCLUSIONS OF LAW
For twenty years, Joseph Byrne was the chess master behind a temporary-staffing agency empire. Byrne orchestrated a network of more than a dozen corporate entities that shielded his assets and allowed him to evade the IRS and avoid his personal tax liabilities.
Much of Byrne's success can be attributed to the control he exerted over a few women. Each of these women was a pawn that Byrne would convince to become "Queen for a day" at his agencies. Byrne would cajole them into forming temporary staffing agencies and act as the agencies' sole shareholders and officers. Then Byrne would continue to make pivotal business decisions and regularly take corporate funds for his own personal use, all while keeping his name off of corporate documents. Thus Byrne maintained control of the corporations and their assets, but the assets stayed out of the reach of his creditors, namely the IRS.
Byrne's story begins approximately twenty years ago when Byrne first inclined personal tax liabilities while doing business as Contract Personnel Services, a temporary staffing agency. Since then, Byrne's every move has been to shield his assets and ensure that they remain outside of the IRS's reach. Each time that trouble looms or Byrne's creditors come close to claiming their debts, Byrne clears the chess board, enlists one of his pawns to open a new staffing agency, and moves all the clients and resources to the new agency. Byrne's creditors are left to deal with a corporation that has no assets.
The lynchpin of Byrne's evasion was the interchangeability of each individual corporation. Byrne's staffing agencies operated as sister companies. The corporations effectively lived under one roof. What one corporation owned, they all owned. When one company lacked workers' compensation insurance, it would continue to conduct business as one of the sister companies that had insurance. If one of the directors was busy with a project, a director from one of the sister companies would step in to oversee collections. Because of how interchangeable the sister companies were and how easily they shared resources, no single company was all that important. What was important was that Byrne's assets continued to flow into new companies, companies to which Byrne held no legal title despite holding all of the control. Because the creditors' claims were against Byrne personally, they could not access these transferred assets. Until recently, this system worked and Byrne continued to evade his creditors.
By 2017, the IRS had $1,574,410.08 in tax liens against Byrne. In February 2017, the IRS determined that Plaintiffs Prompt Staffing, Inc., 24 HR Personnel, Inc., 24 Hour Staffing, Inc., and TSC Staffing, Inc. (collectively "Plaintiffs") were acting as Byrne's nominees and alter egos. To satisfy a portion of the tax liens against Byrne, the IRS levied Plaintiffs' corporate bank accounts,1 which were worth a total of $ 636,216.20. The present action arises from these levies.
The Plaintiffs brought this action alleging that the IRS's levies were wrongful because Plaintiffs were neither the nominees nor alter egos of Byrne. Instead, Plaintiffs claim that individual Plaintiffs Argelia Quezada and Edith Uribe, the corporations' purported sole shareholders and officers, are—and have always been—the true owners of the Plaintiff corporations. Defendant United States of America ("Defendant") argues that Plaintiffs are the nominees and alter egos of Byrne and that the IRS's levies were proper.
The Court finds that Byrne was at all times the de facto owner of the Plaintiff corporations and that the stock issued to Uribe and Quezada was fraudulently issued for the purpose of concealing Byrne's ownership; therefore, the Court holds that Plaintiffs are the nominees and alter egos of Byrne, and the IRS's levies were not wrongful.
Byrne is an Irish native who has been involved with founding and operating temporary staffing agencies since at least the early 1990s. From 1998 to 2001, Bryne was the sole proprietor of a staffing agency called Contract Personnel Service. Dining its brief existence, Contract Personnel Service accumulated employment tax liabilities, for which Byrne was personally liable as the company's sole proprietor. Prompt Staffing, Inc. et al v. United States of America , 5:17-cv-00542-SVW-JEM, Dkt. 80, p.1; Dkt. 31, p. 8.
In October 2011, the IRS filed a third-party complaint in the Northern District of Texas against Byrne to reduce his outstanding tax assessments to judgment. Prompt , Dkt. 31, p. 8. The district court entered judgement in favor of the United States and ordered Byrne indebted to the United States for taxes exceeding $1,500,000. Prompt , Dkt. 31, p. 8.
Not all of the corporate entities discussed below are parties to this action. Only Prompt Staffing, Inc., 24 HR Personnel, Inc., 24 Hour Staffing, Inc., and TSC Staffing, Inc. are Plaintiffs. Although not Plaintiffs, S.C. Staffing, Inc., TSC Staffing Solutions, Inc., Courtesy Staffing, Inc., Ultimate Personnel, Inc., Jobsmetro.net, I Am World Missions, and Open Arms Community Church, all played a role in Byrne's temporary staffing empire.
S.C. Staffing was formed on January 31, 2002. The corporation's Statement of Information from 2002 lists Byrne as its chief executive officer, secretary, chief financial officer, and sole director. Prompt , Dkt. 36, p. 11. In 2003, Plaintiff Argelia Quezada ("Quezada") took control of S.C. Staffing and became the sole officer and shareholder. Prompt , Dkt. 80, p. 2. Quezada then transferred the stock to Carina Galvez ("Galvez") in 2008. Galvez acted as S.C. Staffing's sole officer and owner from 2008 until 2010, when S.C. Staffing ultimately filed for Chapter 7 bankruptcy. Prompt , Dkt. 80, p. 2.
TSC Solutions was formed in 2002. Prompt , Dkt. 80, p. 3; Dkt. 36, p. 22. According to its Articles of Incorporation, Byrne was TSC Solution's sole director. Prompt , Dkt. 36, p. 22. At some point, Byrne transferred the entirety of the business to Quezada for no consideration. 24 Hour Staffing Inc et al v. United States of America , 2:17-cv-01696-SVW-JEM, Dkt. 53, p. 6; Dkt. 81, p. 15. Quezada became the corporation's sole shareholder, officer, and director. Prompt , Dkt. 80. But a 2005 filing still listed Byrne as one of four directors. Prompt , Dkt. 36, p. 22.2
Courtesy formed on October 6, 2004. Prompt , Dkt. 80, p. 2. It is unclear who the original owner was, but not too long after its formation, Quezada took over. 24 Hour , Dkt. 53, p. 6. Quezada became the sole shareholder while Byrne participated in Courtesy's training and business operations. 24 Hour , Dkt. 53, p. 6.
In 2008, two transfers of assets and ownership occurred with Courtesy. First, Quezada transferred Courtesy's stock and ownership to Galvez for no consideration. 24 Hour , Dkt. 53, p. 6; Prompt , Dkt. 80, p. 2. Galvez become Courtesy's sole shareholder and owner. 24 Hour , Dkt. 53, p. 6; Prompt, Dkt. 80, p. 2. During Galvez's ownership of Courtesy, Plaintiff Edith Uribe ("Uribe") joined the sales team of Courtesy's Rancho Cucamonga, CA, location. 24 Hour , Dkt. 53-1, p. 2.
Second, Quezada took Courtesy's most profitable location in Gardena, CA, and transferred ownership and operations of the office to TSC Solutions, discussed in the section above and previously owned by Byrne. 24 Hour , Dkt. 53, p. 6. This transfer was also made for no consideration. 24 Hour , Dkt. 53, p. 6.
A third transfer took place in 2010 when Quezada transferred the Gardena location and its customers from TSC Solutions to 24 Hour Staffing. 24 Hour , Dkt. 53, p. 6. Again, this transfer was made for no consideration. The clients that 24 Hour Staffing obtained proved to be Courtesy's most profitable clients. They accounted for approximately $20,000,000.00 in gross annual revenue. 24 Hour , Dkt. 53, p. 6.
In 2011, Courtesy faced financial issues due to mounting workers' compensation claims from AIG. 24 Hour , Dkt. 53-1, p. 2. The business faced more difficulty when AIG sued Courtesy and levied Courtesy's bank accounts in early 2014. 24 Hour , Dkt. 53-1, p. 2. Courtesy subsequently filed for Chapter 7 bankruptcy in the first quarter of 2014. 24 Hour , Dkt. 81, p. 15.
24 Hour Staffing, Inc. ("24 Hour Staffing") formed on August 30, 2010, in the state of California. 24 Hour , Dkt. 59, p. 4. California Secretary of State's records list Quezada as the President, Chief Executive Officer, Secretary, Chief Financial Officer, and sole director of 24 Hour Staffing. 24 Hour , Dkt. 59, p. 4. In 2010, Quezada transferred all of the customers from TSC Solutions to 24 Hour Staffing. Quezada eventually dissolved 24 Hour Staffing on June 19, 2017. 24 Hour , Dkt. 59, p. 4.
Prompt and Ultimate Personnel both formed on February 11, 2011, with Uribe as their sole shareholder and officer. 24 Hour , Dkt. 53-1, p. 2. Uribe indicates that she opened Prompt and Ultimate Personnel with the intent of servicing some of the customers from Courtesy, owned by Quezada customers. 24 Hour , Dkt. 53-1, p. 2. From 2011 to 2012, Uribe took a portion of Courtesy's customers...
To continue reading
Request your trial
-
Brugnara Props. VI v. Internal Revenue Serv. (In re Props.)
...in California have held that reverse veil piercing is permitted for federal taxing authorities. See Prompt Staffing, Inc. v. United States. , 321 F.Supp.3d 1157, 1178 (C.D. Cal. 2018) (holding that reverse veil piercing is permissible and specifically stating that Postal permitted the use o......
-
Waterford Twp. Police v. Mattel, Inc.
... ... MATTEL, INC., et al., Defendants. LA 17cv04732 VAP (KSx) United States District Court, C.D. California. Signed May 24, 2018 321 F.Supp.3d ... ...