United States v. Appelbaum, CIVIL ACTION NO. 5:12-CV-186 (LEAD)
| Decision Date | 02 October 2015 |
| Docket Number | CIVIL ACTION NO. 3:14-CV-504,CIVIL ACTION NO. 5:12-CV-186 (LEAD) |
| Court | U.S. District Court — Western District of North Carolina |
| Parties | UNITED STATES OF AMERICA, Plaintiff, v. ERIC APPELBAUM, Defendant. CLAUDIA APPELBAUM, Plaintiff, v. THE UNITED STATES OF AMERICA Defendant. |
BEFORE THE COURT is Defendant Eric Appelbaum's ("Appelbaum") Motion for Summary Judgment (Doc. 23), to which the United States has responded (Doc. 29). Defendant has filed a reply (Doc. 34) to the United States' response.
The United States instituted the instant action alleging that Warde Electric Contracting, Inc. ("Warde") did not properly collect, account, or pay over Federal Withholding and Federal Insurance Contribution Act taxes ("FICA" or "trust fund" taxes) for the quarterly tax periods ending June 30, 1999, September 30, 1999, December 31, 1999, September 30, 2000, and December 31, 2000 (the "Tax Periods"). (Doc. 1, ¶¶ 7, 11). The United States seeks to recover these taxes from Eric Appelbaum individually pursuant to 26 U.S.C. § 6672. (Doc. 1, ¶¶ 8-11).The United States alleges that it is entitled to recover the amount of the assessments made on April 10, 2013 and accrued interests and costs. (Doc. 1, ¶¶ 11, 15-16).
Defendant's motion argues that (1) he was not a responsible person under § 6672; and (2) he did not willfully fail to collect, account, or pay over the trust fund taxes to the United States. Defendant largely relies on his own testimony to support his argument that he was not meaningfully involved in Warde from March 1994 to April 2002. Defendant argues that McCoy Glover was the sole responsible person at Warde after Appelbaum sold all of his common shares to Glover and ceased to have any ownership interest in Warde. After the sale, according to Defendant, Glover assumed the presidency, became a member of the board, and was in all respects in charge of Warde. Defendant argues that his lack of involvement is shown by, inter alia, the dearth of checks he signed. Defendant states he was informed by Glover that Glover had arranged an agreement with the IRS to pay the back taxes. According to Defendant, this provides indisputable evidence that he could not have acted willfully in failing to pay the trust fund taxes.
The United States argues that the Glover management arrangement was in large part a sham constructed to enable Warde to obtain a Minority Business Enterprise ("MBE") certification from the State of New York. Plaintiff argues that Warde's business was struggling and Appelbaum determined that the company needed a minority "owner" to obtain this valuable certification. The business could not appear to be controlled by Appelbaum to qualify; therefore, he transferred all of his common stock to Glover in exchange for payment later. Payment was never made, and according to Plaintiff's theory, was never expected to be made because Appelbaum still controlled the business behind the scenes. Plaintiff argues that it is implausible for a man to give up 100% of his common shares in a company that was indebted to him in the amount of $1.9 million; laterissue a personal guaranty of payment to the United States Fidelity and Guaranty Company ("U.S. Fidelity"); be the highest paid employee of the business, almost four times as high as Glover; exercise significant control over Warde's employee benefit and profit sharing plans; own the building in which Warde operates; all while being "a Gal Friday" who only "helped when [he] could." All of this information, according to Plaintiff, gives rise to the inference that Defendant Appelbaum maintained a significant amount of control over the business even after Glover assumed control on paper. Plaintiff argues inter alia that Defendant had actual knowledge of the unpaid trust fund taxes and willfully paid other creditors instead. Further, and in the alternative, Plaintiff argues that Defendant acted willfully because he recklessly disregarded the risk that the trust fund taxes were not being paid by failing to make a reasonable inquiry into the matter.
Summary judgment is appropriate only "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." Fed. R. Civ. P. 56(a). In order to support or oppose a summary judgment motion, a party is required to cite to "materials in the record, including depositions, documents, electronically stored information, affidavits or declarations, . . . admissions, interrogatory answers, or other materials;" or show "that the materials cited do not establish the absence or presence of a genuine dispute, or that an adverse party cannot produce admissible evidence to support the fact." Fed. R. Civ. P. 56(c)(1); Anderson v. Liberty Lobby, 477 U.S. 242 (1986) (); Celotex Corp. v. Catrett, 477 U.S. 317 (1986) (same). A genuine dispute exists only if "the evidence is such that a reasonable jury could return a verdict for the non-moving party." Anderson, 477 U.S. at 248. In conducting its analysis, the Court views the evidence in the light most favorable to the non-moving party. Celotex Corp., 477 U.S. at 325.
Thomas Damiani founded Warde in 1976. (Aff. of Thomas Damiani, Doc. 30-1, at ¶ 2). Warde was a company that performed electrical contracting on smaller and larger jobs in New York; specifically, it installed traffic signals and performed work on bridges, tunnels, and power plants. (Dep. of Eric Appelbaum, Doc. 30-2, at 34:9-25 - 35:1-6). He was the sole shareholder until 1981, when Eric Appelbaum acquired fifty percent of the common stock. (Damiani Aff., at ¶ 2). Thereafter, Appelbaum was the President and controlled the financial end from the office. (Id.). Damiani operated the construction end of the business and supervised job sites, signing whatever Appelbaum told him to sign. (Id.). During this period, Appelbaum could write checks on behalf of Warde, sign a contract on behalf of Warde, had authority over payroll, and made decisions on company expenditures. (Appelbaum Dep., at 28:9-10, 28:23, 30:1-5).
Appelbaum was also involved in several other businesses. These include L.A.B. Electrical Sales Corp. ("L.A.B.") and Eric Thomas Realty. (Id. at 11:16 - 13:2). LAB. sold traffic signal equipment (id. at 13:17-21), including to Warde (id. at 34:13-18). Appelbaum was a 50% owner of Eric Thomas Realty. (Id. at 125:9-15). Eric Thomas Realty owned 100 Wells Ave, Congers, New York, the building in which L.A.B. and Warde were located. (Id. at 79:12 - 80:2, 125:5 - 126:4).
The business was operated in the above manner until it ran into difficulties in 1994. (Damiani Aff., at ¶ 4). At this time, Appelbaum initiated a plan that would allow Warde to obtain a MBE certification from the State of New York. (Id. at ¶ 4). To obtain this certification, one must actually be a minority business owner with fifty-one percent ownership of the entity. N.Y. Exec. Law § 314(2-a)(a)(i) (McKinney). The ownership must be "real, substantial andcontinuing" and the minority owner must "exercise[] the authority to control independently the day-to-day business decisions of the enterprise." § 314(2-a)(a)(ii-iii); see also Harrison & Burrowes Bridge Constructors, Inc. v. Cuomo, 981 F.2d 50, 52-56 (2d Cir. 1992) ().
In order to achieve MBE certification, Appelbaum required that he and Damiani transfer a specified number of shares to McCoy Glover. (Damiani Aff., at ¶ 4). On March 15, 1994, Appelbaum transferred his 50% interest (100 shares) in Warde to McCoy. (Appelbaum Dep., at 39:23-25); (Doc. 26-2, at 2-3). At the time of the transfer, Appelbaum expected to receive compensation in the amount of $89,404.00. (Appelbaum Dep., at 83:1-10, 87:4-9), (Doc. 26-2, at 4). Appelbaum was to be paid in eighty-nine monthly payments of one thousand dollars and a final payment of four hundred four dollars. (Doc. 26-2, at 4). He never received his end of the bargain and there were no demands made in writing for payment. (Id. at 83:1 - 84:3).
On March 31, 1994, the shareholders agreed that Glover would be one member of the Board of Directors, have the authority to designate two others, and the remaining shareholders could designate the final Director. (Doc. 26-3, at 5). Regarding officers, it was agreed that Glover would be President; Damiani, Executive Vice-President; Joseph Donato, Secretary; and Pat Damiani, Vice-President. (Id. at 6). Further, it was agreed that all general corporate checks would have to be signed by Glover, who could also designate a comptroller to execute checks. (Id. at 7).
Prior to the transferring the entirety of his common shares, Appelbaum had loaned around a 1.9 million dollars to the company. (Id. at 40:12-25, 84:19 - 85:24). The loans were made over a period of time and there is no record evidence of these loans. (Id. at 41:11-6, 42:17-25). According to Warde's accountant, David Orenstein, these loans were converted into preferredstock. (Doc. 30-4, at 2). He stated "[t]he attorneys handling the certification process felt that your [Appelbaum's] loans of approximately $2 million to Warde were possibly going to be an issue of 'de facto' control which could disqualify Warde from that designation." (Id.). Orenstein stated that later on in the certification process, (Id.). Glover died before any payment could be made. Id. (emphasis added).
On July 13, 1994, Warde applied for MBE certification which it received.
...
To continue reading
Request your trial