United States v. Baker Funeral Home, Ltd., CIVIL ACTION NO. 11-7316

• Decision Date: 13 July 2016
• Docket Number: CIVIL ACTION NO. 11-7316
• Citation: 196 F.Supp.3d 530
• Parties: UNITED STATES of America, Plaintiff, v. BAKER FUNERAL HOME, LTD., et al., Defendants.
• Court: U.S. District Court — Eastern District of Pennsylvania

196 F.Supp.3d 530

UNITED STATES of America, Plaintiff,

v.BAKER FUNERAL HOME, LTD., et al., Defendants.

CIVIL ACTION NO. 11-7316

United States District Court, E.D. Pennsylvania.

Signed July 13, 2016

Allie C. Yang-Green, Claire H. Taylor, Richard Hagerman, U.S. Department of Justice, Washington, DC, for Plaintiff.

Arnold C. Joseph, Joseph & Associates, Phyllis Horn Epstein, Epstein, Shapiro and Epstein, Philadelphia, PA, for Defendants.

MEMORANDUM

EDUARDO C. ROBRENO, District Judge

Table of Contents

I. FINDINGS OF FACT...536

II. CONCLUSIONS OF LAW...548

A. Civil Contempt...548

1. Legal Standard...548

2. The Amended Permanent Injunction and Consent Receivership Orders are Valid Orders as to Which the Bakers Had Knowledge...549

3. Mr. and Mrs. Baker and Baker Funeral Home, PC, Failed to Comply with the Court's Prior Orders...550

4. Defenses Raised by Mr. and Mrs. Baker and Baker Funeral Home, PC...552

a. Substantial Compliance...552

b. Impossibility...554

i. Mrs. Baker's Attempts to Relinquish Ownership of Baker Funeral Home, PC... 554

ii. IRS Collection Efforts...556

iii. Mrs. Baker's Conversion...556

B. Expanding Scope of the Injunction...557

1. Legal Standard...557

2. Likelihood of Future Compliance with Federal Tax Obligations...558

III. CONCLUSION...561

Baker Funeral Home, through its original identity as Baker Funeral Home, Ltd., and later as Baker Funeral Home, PC, has been in the business of providing funeral and cremation services since 1975. Since 1996, Vince Baker has managed the business, which he inherited when his father passed away. More recently, Mr. Baker's wife, Marcia Baker, assumed much of the responsibility for the business's financial management, while Mr. Baker remained responsible for preparing human remains and directing funerals.

For over four decades, Baker Funeral Home has served several generations of families in its North Philadelphia neighborhood. Unfortunately, during much of this time, Baker Funeral Home and its owners have successfully evaded their federal tax obligations by repeatedly failing to file tax returns and pay taxes owed to the Internal Revenue Service ("IRS"). This defiance by Mr. and Mrs. Baker has led the IRS to a cat and mouse pursuit, in which, so far, Mr. and Mrs. Baker have escaped judgment.

The United States ("the Government") originally brought this civil action against Defendants Baker Funeral Home, Ltd., and Mr. Baker for failure to file timely federal employment tax returns and pay tax liabilities, in violation of 26 U.S.C. §§ 3102, 3111, 3301, 3402, 6011(a), and 6041. See Compl. ¶¶ 1-3, ECF No. 1. On April 12, 2012, the Court granted by consent a Permanent Injunction against Baker Funeral Home, Ltd., and Mr. Baker that, among other things, precluded the funeral home from committing further violations of the Internal Revenue Code ("IRC"). ECF No. 10. After the funeral home remained delinquent on its past and then-present federal tax obligations, the Court entered an Amended Permanent Injunction. ECF No. 33. Still later, faced with continuing violations by the funeral home and Mr. Baker, the Court issued by consent an order appointing a Receiver to oversee the preparation of required federal tax returns and assist the funeral home in making required federal tax payments. Even under the Receivership, the funeral home failed to meet its federal tax obligations.

Before the Court is the Government's third motion to hold Defendants in contempt and modify the scope of the Amended Permanent Injunction to require the winding down of Baker Funeral Home, PC, and bar Mr. Baker and Mrs. Baker from forming another funeral home business. ECF No. 51. The named Defendants have opposed the motion. Opposition briefs have also been filed by interested parties Baker Funeral Home, PC, and Mrs. Baker, as the owner of Baker Funeral Home, PC. The Court held an evidentiary hearing on June 16, 2016.

As is more fully explained below, the Court will consider the issues raised in the Government's motion in two steps: First, the Court will determine whether Defendants, Mrs. Baker, and Baker Funeral Home, PC, are in contempt of the Court's prior orders—an inquiry which requires the Court to look backwards to those individuals' and entities' past conduct. And, second, the Court will determine whether to expand the scope of the Amended Permanent Injunction, an inquiry that is forward-looking and requires the Court to assess the likelihood of Mr. and Mrs. Baker's future compliance with the IRC. This Memorandum constitutes the Court's findings of fact and conclusions of law as to both of these issues.

For the reasons that follow, the Court finds that Defendants, as well as Mrs. Baker and Baker Funeral Home, PC, are in civil contempt of the Amended Permanent Injunction, ECF No. 33, and Consent Order for Appointment of Receiver and Payments of Attorney's Fees, ECF No. 40, and that they are unlikely to meet their past, present, and future federal tax obligations. The Court will address the appropriate remedy to be awarded to the Government, as well as the terms of the expanded injunction, in a subsequent proceeding.

I. FINDINGS OF FACT

Baker Funeral Home's history of federal tax noncompliance is lengthy, somewhat complicated, and ultimately astonishing. The original business entity, Baker Funeral Home, Ltd., failed to file timely employment tax returns and pay its employment tax liabilities beginning in 1995, when Mr. Baker's father, Wendell Baker, was still running the business. Lewis Decl. ¶ 9, July 20, 2011, ECF No. 2-2.

Beginning in 1999, the IRS devoted considerable time and resources to bringing Baker Funeral Home, Ltd., into tax compliance through administrative means. Permanent Inj. Order ¶ 7, ECF No. 10. The funeral home's pre-2002 liabilities were satisfied through enforced collection action. Lewis Decl. ¶ 11, July 20, 2011. Eventually, however, the IRS's efforts proved unsuccessful and Baker Funeral Home's liabilities continued to accrue. Permanent Inj. Order ¶ 8. For instance, IRS revenue officers repeatedly contacted Baker Funeral Home, Ltd., and Mr. Baker to request tax returns and payments, to no avail. Lewis Decl. ¶ 17, July 20, 2011. The IRS also issued levies to seize Baker Funeral Home, Ltd.'s accounts receivable and other accounts but obtained only a small amount of money through such levies due, at least in part, to Mr. Baker's practice of switching the business's bank accounts after the IRS issued the levies. Id.¶ 19. On several occasions, the IRS attempted to seize Baker Funeral Home, Ltd.'s business assets and real property, but Mr. Baker made the requisite minimal payments at the eleventh hour to avoid seizure or to exercise a right of redemption. Id.¶¶ 20, 24.

On November 25, 2011, the Government brought the instant suit against Baker Funeral Home, Ltd., and Mr. Baker for failure to file timely federal employment tax returns and pay tax liabilities beginning with the fourth quarter of 2002. See Compl. ¶¶ 1-3; Lewis Decl. ¶ 13, July 20, 2011. As of August 1, 2011, Baker Funeral Home, Ltd., owed approximately $800,000 in unpaid employment taxes, including penalties and interest that had accrued since 2002. Compl. ¶ 1.

In the Complaint, the Government sought to obtain a monetary judgment against Baker Funeral Home, Ltd., for past due tax liabilities and an injunction mandating the business and Mr. Baker to file timely tax returns and make timely tax payments. See generally Compl. The matter was originally assigned to the Honorable Ronald L. Buckwalter.¹

The parties consented to the entry of a Permanent Injunction and judgment of $813,657 against Baker Funeral Home, Ltd., which the Court entered on April 12, 2012. ECF Nos. 8, 10, 13, 15. The Permanent Injunction required Baker Funeral Home, Ltd., and Mr. Baker to, inter alia, withhold and pay to the IRS all required employment and unemployment taxes; timely file Form 940 (Employer's Annual Federal Unemployment (FUTA) Tax Return) and Form 941 (Employer's Quarterly Federal Tax Return) returns going forward; make timely and full payroll tax deposits; and notify the IRS if Mr. Baker began operating a new business enterprise. Permanent Inj. Order ¶ 19.

Baker Funeral Home, Ltd., and Mr. Baker violated the Permanent Injunction almost immediately. First, Baker Funeral Home, Ltd., failed to file timely tax returns, timely pay its taxes, and make timely bi-weekly payroll tax deposits. Lewis Decl. ¶¶ 5-12, June 26, 2012, ECF No. 16-2.

Second, and more egregiously, in March 2012, Mr. Baker and his wife, Mrs. Baker, transferred all of Baker Funeral Home, Ltd.'s business assets and operations to Baker Funeral Home, PC, an entity formed in May 2011 and owned solely by Mrs. Baker. Stipulation of Undisputed Facts Related to Baker Funeral Home, Ltd. ¶ 3, ECF No. 24. Accordingly, Baker Funeral Home, Ltd., is now defunct, at least in its capacity as a taxpayer incurring additional tax obligations.²

During this litigation, Mr. Baker and Mrs. Baker have readily admitted that Baker Funeral Home, PC, was created as a "new start" to avoid IRS collection and access new lines of credit. Contempt Hr'g Tr. 5:24-16:12, Oct. 15, 2012, ECF No. 29; Evid. Hr'g Tr. 115:14-23, June 15, 2016, ECF No. 79. Defendants later stipulated that they violated the Permanent Injunction's terms by failing to inform the Government of the creation of Baker Funeral Home, PC, because the order required them to notify the IRS within ten business days if they or their representative, agent, or employee, or anyone in active concert or participation with them began to operate a new business enterprise. Stipulation of Undisputed Facts Related to Baker Funeral Home, Ltd. ¶ 3.

And Mr. and Mrs. Baker intended Baker Funeral Home, PC, to be a fresh start in other ways. Mrs. Baker was not simply a nominal owner of Baker Funeral Home, PC. Rather, for the first time, she took on an active role in managing the funeral home business. Marcia Baker's Resp. Gov't's 3d Mot. Contempt at 3, ECF No. 70 (admitting that Mrs. Baker ...