Vandenheede v. Vecchio, 13-1253

• Decision Date: 01 October 2013
• Docket Number: No. 13-1253,13-1253
• Parties: MARY C. VANDENHEEDE, Plaintiff-Appellant, v. FRANK B. VECCHIO; FRANK A. BORSCHKE; BUTZEL LONG, A Professional Service Corporation; and DOEREN MAYHEW AND CO., P.C., Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

MARY C. VANDENHEEDE, Plaintiff-Appellant, v. FRANK B. VECCHIO; FRANK A. BORSCHKE; BUTZEL LONG, A ProfessionalService Corporation; and DOEREN MAYHEW AND CO., P.C., Defendants-Appellees.

No. 13-1253

UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT

FILED: October 1, 2013

NOT RECOMMENDED FOR FULL-TEXT PUBLICATION

File Name: 13a0856n.06

ON APPEAL FROM THE UNITED

STATES DISTRICT COURT FOR THE

EASTERN DISTRICT OF MICHIGAN

Before: COOK, GRIFFIN, and KETHLEDGE, Circuit Judges

COOK, Circuit Judge.PlaintiffMary C. Vandenheede sued defendantsFrank B. Vecchio and Frank A. Borschke, as well as their respective law and accounting firms, Butzel Long and Doeren Mayhew and Co., P.C., alleging tax fraud under 26 U.S.C. § 7434, civil conspiracy, intentional infliction of emotional distress, and breach of contract.The district court granted defendants judgment on the pleadings under Federal Rule of Civil Procedure 12(c) on all counts, and Vandenheede appeals.She also asks this court to remand to the district court for consideration of a sanctions motionshe filed against Vecchio and his firm.For the following reasons, we AFFIRM the district court's judgment.

I.

This litigation arises from a dispute between the trustees of the Donald J. Chinn Trust ("Trust") and Vandenheede, Chinn's longtime girlfriend, regarding whether substantial payments by the Trust to Vandenheede qualified as taxable income.According to the complaint, Chinn paid his and Vandenheede's living expenses from this revocable trust.(Compl. ¶ 17.)Vecchio and Borschke, Chinn's attorney and accountant, became trustees when Chinn was diagnosed with dementia, and they filed 1099-MISC forms for tax years 2006 and 2007, showing that the Trust paid Vandenheede more than $110,000 in "non-employee compensation" during those years.(Id.¶¶ 14, 18.)The 1099s information returns reporting payments of income to the IRS prompted the IRS and the Michigan Department of Treasury to assess her taxes and penalties; she has since succeeded in abating the federal taxes.(Id.¶¶ 36, 46 47.)Chinn died in 2009, and Vandenheede filed this action in May 2012 after Vecchio and Borschke refused to correct or retract the filings.

Vandenheede's tax fraud, civil conspiracy, and intentional infliction of emotional distress claims challenge the propriety of defendants' filing the 1099s and their refusal to file retractions.She characterizes these tax filings as fraudulent because the trustees knew: (1) of her long-term relationship with Chinn; (2) that the "payments . . . were for the benefit of . . . Chinn, not of [Vandenheede]"; (3) that Chinn paid her living expenses and bought her a house; and (4)she"never performed compensated services for . . . Chinn" during their relationship.(Id.¶¶ 12 13, 15 17, 20 26.)She also alleges "detrimental reliance/breach of contract," claiming that Vecchio"individually and as trustee of the Donald J. Chinn Trust" reneged on a promise to reimburse her for attorneys' fees related to the drafting of a prenuptial agreement.(Id.¶¶ 75 77.)In that regard, she alleges that "the intermeddling Vecchio" requested the prenuptial agreement "[t]o prevent . . . Chinn and [her] from marrying."(Id.¶ 51.)

The district court granted defendants judgment on the pleadings on all counts, finding that: (1) as a matter of law, Chinn, not the trustees, qualified as the "filer" of the 1099s, defeating the § 7434 tax fraud claim against the trustees; (2)the state-law claims for conspiracy and intentional infliction of emotional distress were time-barred; (3) Vecchio's representative capacity as Chinn's attorney precluded an independent claim against him for breach of contract; and (4) Michigan law precluded Vandenheede, a non-client, from suing the accounting firm Doeren Mayhew.Vandenheede appeals.

II.

We give fresh review to a Rule 12(c) judgment on the pleadings, utilizing the same pleading standard applicable under Rule 12(b)(6).Wee Care Child Ctr., Inc. v. Lumpkin, 680 F.3d 841, 846(6th Cir.2012).To survive an adverse judgment, then, the complaint must "contain[] sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face."Bartholomew v. Blevins, 679 F.3d 497, 499(6th Cir.2012)(quotingAshcroft v. Iqbal, 556 U.S. 662, 678(2009)).Rule 9(b)'s heightened pleading standard applies to Vandenheede's tax-fraud claim.SeeFed. R. Civ. P. 9(b).Her complaint therefore "must state with particularity the circumstances constitutingfraud."Id."Although 'conditions of a person's mind may be alleged generally,'Fed. R. Civ. P. 9(b), the plaintiff still must plead facts about the defendant's mental state, which, accepted as true, make the state-of-mind allegation plausible on its face."Republic Bank & Trust Co. v. Bear Stearns & Co., 683 F.3d 239, 247(6th Cir.2012)(second quotation omitted).The Rule requires the plaintiff: "(1) to specify the allegedly fraudulent statements; (2) to identify the speaker; (3) to plead when and where the statements were made; and (4) to explain what made the statements fraudulent."Id.;see alsoSanderson v. HCA-The Healthcare Co., 447 F.3d 873, 877(6th Cir.2006)("[A]t a minimum, Rule 9(b) requires that the plaintiff specify the 'who, what, when, where, and how' of the alleged fraud."(citation and internal quotation omitted)).

In determining the sufficiency of the complaint, we confine our review to the pleadings, exhibits attached to or addressed in the complaint, documents included with a motion to dismiss if referenced in the complaint, and public records.Rondigo, L.L.C. v. Twp. of Richmond, 641 F.3d 673, 680 81 (6th Cir. 2011).We may affirm the district court's judgment on alternative grounds supported by the record or pleadings.See, e.g., Bondex Int'l, Inc. v. Hartford Accident & Indem. Co., 667 F.3d 669, 676(6th Cir.2011);Murphy v. Nat'l City Bank, 560 F.3d 530, 535(6th Cir.2009).

A.Tax Fraud Under§ 7434

The relevant tax code provision states:

Civil damages for fraudulent filing of information returns

(a) In general.--If any person willfully files a fraudulent information return with respect to payments purported to be made to any other person, such other person may bring a civil action for damages against the person so filing such return.

26 U.S.C. § 7434(a).The question posed to the district court was who "filed" the returns, the trustees who prepared the documents or the taxpayer Chinn.

Looking to the related provision governing untimely and incorrect information returns, 26 U.S.C. § 6721, and its implementing regulation's definition of "filer" as the "person that is required to file an information return,"26 C.F.R. § 301.6721-1(g)(6), the district court concluded that Chinn and not the preparers of the documents "filed" the return as a matter of law, because "the tax consequences, if any, of the 1099-MISCs ran directly to Donald J. Chinn, who reported all income and deductions of his trust on his personal income tax returns."Vandenheede counters this, maintaining that Vecchio and Borschke, by preparing and submitting the documents for the Trust, filed the 1099s, and that the district court's narrow interpretation of § 7434 shields trustees from its tax-fraud proscriptions.

We resolve this appeal on the more direct path noted by the district court in dismissing other claims in this case: the absence of particularized allegations demonstrating fraud.(SeeR. 42, Op. & Orderat 7(explaining that plaintiff"does not claim fraud or intentional misrepresentation byDoeren Mayhew . . . with the requisite particularity").)The tax-code provision governing these information returns states in pertinent part:

(a) Payments of $600 or more.--All persons engaged in a trade or business and making payment in the course of such trade or business to another person, of rent, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, or other fixed or determinable gains, profits, and income (other than [excluded payments covered by other tax code provisions]), of $600 or more in any taxable year . . . shall render a true and accurate return to the Secretary, under such regulations and in such form and manner and to such extent as may be prescribed by the Secretary, setting forth the amount of such gains, profits, and income, and the name and address of the recipient of such payment.

26 U.S.C. § 6041(a).This broad provision, used by the government to verify incomes for purposes of assessing and collecting taxes, does not require an employer-employee relationship.Marlar, Inc. v. United States, 151 F.3d 962, 968(9th Cir.1998).The challenged information returns in this case identified the payments to Vandenheede as "nonemployee compensation."Vandenheede denies ever performing compensated services for the Trust or Chinn, and the trustees defend that they lacked authority to issue Trust funds as gifts, so they needed to record the payments to Vandenheede as income.Yet, because Vandenheede's § 7434 claim alleges fraud, her pleadings must do more than establish an accounting mistake.

Section 7434(a) prohibits the "willful[] fil[ing]" of "a fraudulent information return with respect to payments purported to be made to any other person."As Vandenheede acknowledges, willfulness in this context "connotes a voluntary, intentional violation of a legal duty."(Appellant Br.at 35.)Tax fraud typically requires "intentional wrongdoing."SeeMaciel v. Comm'r, 489 F.3d1018, 1026(9th Cir.2007);Granado v. Comm'r, 792 F.2d 91, 93(7th Cir.1986)(per curiam).At the motion to dismiss stage, then, the complaint must contain specific allegations supporting a plausible inference that Vecchio and Borschke willfully filed false information returns.Republic Bank & Trust Co., 683 F.3d at 247.It does not.

To begin with, the complaint does not specify how the Trust made the payments to Vandenheede after Vecchio and Borschke became trustees or what exactly the payments were for....