Spizz v. United States
| Decision Date | 04 December 2017 |
| Docket Number | 15 Civ. 2361 (KPF) |
| Citation | 291 F.Supp.3d 447 |
| Parties | Alex SPIZZ, Plaintiff, v. UNITED STATES of America, Defendant/Third–Party Plaintiff, v. Martin Todtman, Third–Party Defendant. |
| Court | U.S. District Court — Southern District of New York |
Brian Patrick Ketcham, Megan Lynn Brackney, Kostelanetz & Fink, LLP, New York, NY, for Plaintiff/Third–Party Defendant.
Christine Schessler Poscablo, Arastu Kabeer Chaudhury, U.S. Attorney Office, New York, NY, for Defendant/Third–Party Plaintiff.
This case arises from financial decisions made by a law firm during an extended period of financial distress, at least part of which was attributable to larcenous conduct from within. After the firm failed to remit taxes it was holding in trust for the Government, the Internal Revenue Service (the "IRS") assessed penalties against the firm's shareholders for the amounts owed. One such shareholder, Alex Spizz, initiated this action to seek an abatement of the penalties; the Government then counterclaimed against Spizz and filed a third-party complaint against the two other shareholders, Martin Todtman and Barton Nachamie, seeking judgment against them in the amount of the outstanding tax liabilities. Before the Court is the Government's motion for summary judgment with respect to its claims against Spizz and Todtman. For the reasons that follow, the Court grants the motion.
From 2009 through mid-September 2012, Spizz, Todtman, and Nachamie were the named shareholders of the law firm Todtman, Nachamie, Spizz & Johns, P.C., in which they each held a one-third interest. (Spizz 56.1 Opp. ¶ 1). In mid-September 2012, Todtman left the firm, which then became Nachamie Spizz Cohen & Serchuk, P.C., with Spizz and Nachamie becoming equal shareholders. (Id. at ¶ 14). Nachamie then left the firm in or about December 2013, at which point the firm became Spizz Cohen & Serchuk, P.C., with Spizz becoming sole shareholder. (Id. at ¶ 15). The firm ceased operations in April 2015. (Id. at ¶ 16).
The firm employed between 28 and 33 employees from 2009 through 2012, and hired a payroll service that calculated each employee's net pay and prepared payroll checks for the firm. (Spizz 56.1 Opp. ¶¶ 2–3). The payroll service also calculated the firm's tax obligations, including its trust fund taxes, i.e., the federal income, social security, and Medicare taxes that the firm was required to withhold from its employees and pay to the IRS each pay period. (Id. at ¶ 4). The firm failed to pay trust fund taxes in a timely manner to the IRS for the following quarterly tax periods in the following amounts:
(Id. at ¶¶ 6–13).2 The issue in this litigation is whether the Government is entitled to hold Spizz or Todtman personally liable for the portions of these amounts that remain outstanding.
By way of background, Todtman established the law firm that eventually became Todtman, Nachamie, Spizz & Johns, P.C. in the mid-1970s. (See Todtman Dep. 12:10–13:21). From 2009 through mid-September 2012, Todtman was a shareholder at the firm, controlling one-third of its voting stock, and an officer holding the title of President. (Todtman 56.1 Opp. ¶¶ 17–18). Although Todtman now contends that he "was denied independent access to the firm's checkbooks and check authorization from 2008" (id. at ¶ 110), the record overwhelmingly proves the contrary. For starters, other members and colleagues of the firm recognized Todtman as having an outsized role in the firm's management. Mitchell Lynn, an outside accountant for the firm who prepared the firm's annual tax return, testified during a deposition that Todtman was "the managing officer of the firm." (Lynn Dep. 28:5–6). Indeed, Todtman himself testified that he "started th[e] firm," and "[i]f it wasn't for Todtman, there wouldn't have been a firm." (Todtman Dep. 148:17–18, 160:18–19). Spizz's testimony likewise emphasized that as President, Todtman (Spizz Dep. 29:5–12).3
Documentary evidence also underscored Todtman's managerial role. In September 2012, on behalf of the firm, Todtman completed an IRS form entitled, "Report of Interview with Individual Relative to Trust Fund Recovery Penalty or Personal Liability for Excise Taxes." (Tong. Decl., Ex. 14). On the form, Todtman checked boxes indicating that he performed the following duties at the firm from 1978 through 2010:
(Id. ). He also signed the firm's corporate income tax return for 2009, and the firm's quarterly federal tax return for the third and fourth quarters of 2009 and the first quarter of 2010. .
In the course of discharging these responsibilities, Todtman made consequential decisions concerning the firm's tax payments. Outside accountant Lynn testified that in 2009, he discovered that the firm was failing to pay trust fund taxes. (Lynn Dep. 22:10–23). Upon discovering the underpayment, Lynn brought the issue solely to Todtman's attention, who responded "that he [Todtman] could not pay his taxes and pay the bills of the firm, so he was making a hard choice." (Id. at 23:5–17; see id. at 24:14–23). Laurie Newman, the firm's former bookkeeper and office manager, testified similarly that when she discussed the issue with Todtman, rather than providing an explanation, he replied, "fuck them." (Newman Dep. 77:4–20; see id. at 14:2–18:15).
Todtman denies that either of these conversations occurred. (Todtman 56.1 Opp. ¶¶ 30–31). However, as discussed more fully below, once Spizz discovered that the firm had fallen behind on tax payments, he and Nachamie identified Todtman as the source of the problem and revoked his managerial authority.
From 2009 through mid-September 2012, Spizz was a shareholder at the firm, controlling one-third of the firm's voting stock, and was an officer with the title of Vice President. (Spizz 56.1 Opp. ¶¶ 33–35). During his deposition, Spizz testified that as a small business, the shareholders ran the firm "very informally," but if any "major decisions had to take place, [they] would meet, and ... generally agree on something." (Spizz Dep. 37:2–10).
Like Todtman, Spizz's submissions in this case bespeak a desire to distance himself from any awareness of the firm's financial difficulties from 2009 to its 2015 demise. In this regard, Spizz maintains that prior to June 2010, "his primary role at the Firm was practicing law." (Spizz 56.1 Opp. ¶ 36). At least as early as June 2010, however, Spizz was involved with major financial decisions at the firm, including paying creditors and trust fund taxes. (Id. at ¶ 35). Spizz also admits to participating in hiring and compensation decisions at the firm, but maintains that before June 2010, Todtman had authority to hire and fire employees and determine attorney compensation levels without the approval of other shareholders. (See id. at ¶¶ 36–38; Spizz Dep. 147:22–148:3; see also Spizz Decl. ¶ 5 () ).
Spizz acknowledges that he had authority to sign checks from the firm's operating and payroll accounts; however, he asserts that before June 2010, he only did so upon Todtman's authorization. (Spizz 56.1 Opp. ¶¶ 38–39). From at least 2009 until the firm closed in April 2015, Spizz was authorized to, and did in fact, guarantee loans on behalf of the firm. (Id. at ¶ 40). Spizz also had authority to review and sign the firm's corporate tax returns and quarterly tax returns, and he signed the firm's quarterly tax return for the second quarter of 2010. (Id. at ¶¶ 41–42).
On or before June 10, 2010, Spizz discovered that the firm had failed to pay the trust fund taxes it had been withholding.
(Spizz 56.1 Opp. ¶ 44). Before that date, according to Spizz, Todtman had directed a tax lawyer at the firm, Robert Tolz, to prepare an Offer in Compromise to present to the IRS in an effort to settle the firm's tax liabilities. (Id. at ¶ 78). While preparing the Offer in Compromise, Tolz conferred only with Todtman and Nachamie. (Id. at ¶ 80). Tolz then approached Spizz to request his signature on the Offer in Compromise, at which point Spizz learned of the amounts owed. (Id. at ¶¶ 78–81; Spizz Dep. 86:4–22). Spizz then confronted Nachamie and told him that he (Spizz) would only remain at the firm if Todtman no longer managed the firm's finances. (See Spizz 56.1 Opp. ¶¶ 81–82; Spizz Dep. 87:13–89:3). Soon thereafter (by June 14 according to Spizz and June 16 according to the Government), Spizz and Nachamie revoked Todtman's managerial responsibilities. (Spizz 56.1 Opp. ¶ 45).4
After revoking Todtman's management authority, Spizz and Nachamie began managing the firm's finances. (Spizz 56.1 Opp. ¶¶ 48–49). Spizz initially assumed at least some responsibility for these tasks, but...
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