Verret v. U.S.

Decision Date14 February 2008
Docket NumberCivil Action No. 1:06-CV-636.
Citation542 F.Supp.2d 526
PartiesStephen K. VERRET, Plaintiff, v. UNITED STATES of America, Defendant/Third Party Plaintiff, v. Angela Massey, Third Party Defendant.
CourtU.S. District Court — Eastern District of Texas

Banker H. Phares, Attorney at Law, Beaumont, TX, for Plaintiff.

Jon E. Fisher, Department of Justice, Dallas, TX, for Defendant/Third Party Plaintiff.

Susan Jennifer Oliver, Attorney at Law, Beaumont, TX, Third Party Defendant.

MEMORANDUM AND ORDER

MARCIA A. CRONE, District Judge.

Pending before the court is Defendant United States of America's ("the Government") Motion for Summary Judgment (# 23). Defendant seeks summary judgment on Plaintiff Stephen K. Verret's ("Verret") complaint against the Government for a refund of $408,918.66 assessed against him by the Internal Revenue Service ("IRS") for employment and withholding taxes, penalties, and interest. Having reviewed the pending motion, the submissions of the parties, the pleadings, and the applicable law, the court is of the opinion that summary judgment is warranted.

I. Background

Community Healthcare Foundation was a 501(c)(3) tax-exempt organization, the primary business of which was the operation of Doctors Hospital located at 5500 39th Street in Groves, Texas.1 By-Laws of the Board of Trustees of Doctors Hospital (the "By-Laws"), created by Community Healthcare Foundation, outlined the operational and managerial structure of Doctors Hospital. The By-Laws specified that the Board of Trustees (the "Board"), comprised of voluntary and unpaid members of the community, shall act as the governing body of Doctors Hospital. The By-Laws also provided for a Chairman of the Board and a Chief Administrative Executive Officer ("Executive Director" or "CEO") in addition to various other positions.

In May 1976, at the age of twenty-two, Verret joined Doctors Hospital's Board. He served in various capacities on the Board during his approximately twenty-six-year tenure, including holding the position of Chairman of the Board from 1999 until his departure in 2002. In addition to his service on the Board, Verret, unlike his fellow Trustees, had a unique relationship with Doctors Hospital. Stoneburner-Verret Electric Company, Inc. ("Stoneburner"), a company in which Verret is a majority stockholder, performed and invoiced Doctors Hospital on repeated occasions for "electrical services." Also, Verret's wife was employed by Doctors Hospital as the Chief Operating Officer from January through March 2001. In 1999, NewCare Hospital Corporation ("NewCare"), a business involved in the operation and management of hospitals, contracted with Verret to assist with the recruitment of specialized physicians to a lucrative new practice area for the hospital. Verret devoted a significant amount of time to this endeavor, laboring "between 22 and 30 hours a week" during 2001 alone. For these services, which oftentimes overlapped with his duties as Chairman, Verret was compensated between $70,000.00 and $80,000.00 per year.

Despite its best efforts, Doctors Hospital's financial situation steadily deteriorated. During the first part of 2001, David Cottey ("Cottey"), Doctors Hospital's Executive Director, informed Verret and the Board that Doctors Hospital had failed to remit to the Government employment withholding taxes totaling approximately $400,000.00. The outstanding tax liability was ultimately satisfied with borrowed monies appropriated for the procurement of medical equipment. Cottey was informed by Verret, individually, and by the Board, collectively, however, that the payment of employment withholding taxes was of paramount importance and that, under no circumstances, should he fail to pay them again. Although the record does not indicate that the Board took any specific steps to devise, implement, or supervise a system of internal controls to ensure timely future payments, the Board repeatedly asked Cottey during 2001 about the status of Doctors Hospital's employment taxes. Each time, Cottey informed the Board that the employment taxes were current.

By the end of 2001, Doctors Hospital's financial condition was precarious. Contrary to his prior assurances, Cottey informed Verret and the Board in November 2001 that the income and FICA taxes for the employees were delinquent for the third and fourth quarters of 2001. Verret has not presented evidence that any measures were taken by the Board at that time to ensure the satisfaction of the outstanding liability other than again "urging" the Executive Director to pay the taxes. When Cottey failed to comply with the Board's request, a search was initiated to find a suitable replacement for Cottey. Nevertheless, the Board continued to employ and rely on Cottey during the interim.

The tax delinquency for the third and fourth quarters of 2001 ultimately gave rise to the instant action. The IRS found Verret, Cottey, and Angela Massey ("Massey"), who held positions as Doctors Hospital's Controller and Chief Financial Officer during the relevant period, to be "responsible parties" for the payment of federal withholding taxes under § 6672 of the Internal Revenue Code.2 The IRS settled with Cottey and assessed a penalty of $407,097.66 plus $1,821.00 of interest against Verret.3 Verret has paid this assessment in full and on October 12, 2006, initiated the above-styled action to obtain a refund. The Government filed the instant motion on October 15, 2007, seeking summary judgment on Verret's claim.

II. Analysis
A. Summary Judgment Standard

Rule 56(c) of the Federal Rules of Civil Procedure provides that summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." FED. R.CIV.P. 56(c). The party seeking summary judgment bears the initial burden of informing the court of the basis for its motion and identifying those portions of the pleadings, depositions, answers to interrogatories, admissions on file, and affidavits, if any, which it believes demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Warfield v. Byron, 436 F.3d 551, 557 (5th Cir.2006); Lincoln Gen. Ins. Co. v. Reyna, 401 F.3d 347, 349 (5th Cir. 2005); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Martinez v. Schlumberger, Ltd., 338 F.3d 407, 411 (5th Cir.2003); Terrebonne Parish Sch. Bd. v. Mobil Oil Corp., 310 F.3d 870, 877 (5th Cir.2002).

"A fact is `material' if it `might affect the outcome of the suit under governing law.'" Bazan ex rel. Bazan v. Hidalgo County, 246 F.3d 481, 489 (5th Cir.2001) (emphasis in original) (quoting Anderson, 477 U.S. at 248, 106 S.Ct. 2505); accord Cooper Tire & Rubber Co. v. Farese, 423 F.3d 446, 454 (5th Cir.2005); Harken Exploration Co. v. Sphere Drake Ins. PLC, 261 F.3d 466, 471 (5th Cir.2001); Merritt-Campbell, Inc. v. RxP Prods., Inc., 164 F.3d 957, 961 (5th Cir.1999); Burgos v. Southwestern Bell Tel. Co., 20 F.3d 633, 635 (5th Cir.1994). "Factual disputes that are irrelevant or unnecessary will not be counted." Anderson, 477 U.S. at 248, 106 S.Ct. 2505. "An issue is `genuine' if it is real and substantial, as opposed to merely formal, pretended, or a sham." Bazan, 246 F.3d at 489 (emphasis in original). Thus, a genuine issue of material fact exists "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson, 477 U.S. at 248, 106 S.Ct. 2505; accord EMCASCO Ins. Co. v. American Int'l Specialty Lines Ins. Co., 438 F.3d 519, 523 (5th Cir.2006); Cooper Tire & Rubber Co., 423 F.3d at 454; Harken Exploration Co., 261 F.3d at 471; Merritt-Campbell, Inc., 164 F.3d at 961. The moving party, however, need not negate the elements of the nonmovant's case. See Boudreaux v. Swift Transp. Co., 402 F.3d 536, 540 (5th Cir.2005); Wallace v. Texas Tech Univ., 80 F.3d 1042, 1047 (5th Cir.1996) (citing Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir.1994)).

Once a proper motion has been made, the nonmoving party may not rest upon mere allegations or denials in the pleadings but must present affirmative evidence, setting forth specific facts, to show the existence of a genuine issue for trial. Celotex Corp., 477 U.S. at 322 n. 3, 106 S.Ct. 2548 (quoting FED.R.CIV.P. 56(e)); Anderson, 477 U.S. at 256, 106 S.Ct. 2505; Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 n. 11, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986); EMCASCO Ins. Co., 438 F.3d at 523; Smith ex rel. Estate of Smith v. United States, 391 F.3d 621, 625 (5th Cir.2004); Malacara v. Garber, 353 F.3d 393, 404 (5th Cir.2003); Rushing v. Kansas City S. Ry. Co., 185 F.3d 496, 505 (5th Cir.1999), cert, denied, 528 U.S. 1160, 120 S.Ct. 1171, 145 L.Ed.2d 1080 (2000). "[T]he court must review the record `taken as a whole.'" Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 150, 120 S.Ct. 2097, 147 L.Ed.2d 105 (2000) (quoting Matsushita Elec. Indus. Co., 475 U.S. at 587, 106 S.Ct. 1348); see Riverwood Int'l Corp. v. Employers Ins. of Wausau, 420 F.3d 378, 382 (5th Cir.2005). All the evidence must be construed "in the light most favorable to the non-moving party without weighing the evidence, assessing its probative value, or resolving any factual disputes." Williams v. Time Warner Operation, Inc., 98 F.3d 179, 181 (5th Cir.1996); see Reeves, 530 U.S. at 150, 120 S.Ct. 2097; Lincoln Gen. Ins. Co., 401 F.3d at 350; Smith, 391 F.3d at 624; Malacara, 353 F.3d at 398; Broum v. City of Houston, 337 F.3d 539, 541 (5th Cir.2003); Harken Exploration Co., 261 F.3d at 471; Daniels v. City of Arlington, 246 F.3d 500, 502 (5th Cir.), ...

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