White v. Jones (In re Butler Innovative Solutions, Inc.)
| Decision Date | 24 April 2015 |
| Docket Number | Case No. 08-00065,Adversary Proceeding No. 10-10021 |
| Parties | In re BUTLER INNOVATIVE SOLUTIONS, INC., Debtor. WILLIAM DOUGLAS WHITE, TRUSTEE Plaintiff, v. BETZAIDA JONES, Defendant. |
| Court | United States Bankruptcy Courts – District of Columbia Circuit |
The plaintiff, William Douglas White, is the trustee appointed to administer the estate of the debtor, Butler Innovative Solutions, Inc. ("Butler Innovative"). He seeks in this adversary proceeding to avoid pursuant to 11 U.S.C. § 549 certain transfers of funds of the estate of Butler Innovative made to or for the benefit of the defendant, Betzaida Jones,without court authorization after the entry of the order for relief in this case on March 14, 2008, and to recover pursuant to 11 U.S.C. § 550(a) a judgment for the amount of those transfers. White has filed an amended motion for summary judgment, which Jones has opposed.1 I will grant that amended motion in large part, and direct the parties to provide additional information and briefing as to certain minor deductions from Jones's pay.
Except for raising a statute of limitations defense as to one of the transfers, a defense that is premised on an erroneous factual assumption, Jones does not dispute that the transfers at issue are avoidable under 11 U.S.C. § 549. In turn, 11 U.S.C. § 550(a) provides:
Then, 11 U.S.C. § 550(d), raised by Jones as a defense, provides: "The trustee is entitled to only a single satisfaction undersubsection (a) of this section." White has demonstrated his entitlement to avoidance under § 549 of the transfers at issue, and to the entry of a judgment under § 550(a), and, in short, there has not yet been a satisfaction that can be raised as a defense under the single satisfaction rule of § 550(d).
Jones has not raised a genuine dispute as to the material facts upon which White relies, and the additional facts adduced by Jones (which for purposes of White's motion I will assume are true) do not alter White's entitlement to summary judgment. Accordingly, for purposes of disposing of this motion, the facts are as follows.
Jones was employed full time by Butler Innovative beginning in 2005 or 2006. In 2008 (the year Butler Innovative's bankruptcy case began), Jones commenced doing relocation planning for Butler Innovative, and when the position opened during the first quarter of 2008, Jones began handling the Westwood Security relocation in Birmingham, Alabama for Butler Innovative. She continued to provide services for Butler Innovative through at least September 4, 2008, when the Birmingham, Alabama project ended. She performed her work on location in Birmingham, not in Butler Innovative's office, and had no responsibility for preparing or submitting payroll to Paychex.
Butler Innovative's bankruptcy case began with the filing ofan involuntary petition under chapter 7 of the Bankruptcy Code on January 31, 2008. On March 14, 2008, the court entered an order for relief under 11 U.S.C. § 303(h). Prior to the entry of that order, Butler Innovative had authority to continue to operate its business and to "continue to use, acquire, or dispose of property as if an involuntary case concerning [it] had not been commenced." 11 U.S.C. § 303(f). The entry of the order for relief terminated that authority.
White was appointed to serve as the trustee in the case, and has continued to so serve under 11 U.S.C. §§ 701(a)(1) and 702(d). White did not seek to continue to operate Butler Innovative's business under 11 U.S.C. § 704(a)(8).
Jones acknowledged in her deposition that throughout 2008 she was in a personal relationship with John Butler. After entry of the order for relief on March 14, 2008, and until August 22, 2008,2 Jones received Butler Innovative net payroll payments through Paychex based on gross wages of $11,666.72 less withholdings for income taxes, Social Security, Medicare, and other miscellaneous amounts.
Butler Innovative also made transfers during 2008 for the benefit of Jones in the form of payments to Edward H. Meyer & Son, Jones's landlord. The payments were in the form of checks on Butler Innovative's checking account signed by John Butler, the President and sole owner of Butler Innovative. Thus far, White has identified $3,610 of payments to Edward H. Meyer & Son as follows: check number 1025 dated July 31, 2008 in the amount of $1,265; check number 1031 dated August 21, 2008 for $1,045; check number 1019 dated June 1, 2008 for $1,300. (If White's motion for summary judgment is granted, he is content to limit his recovery from Jones regarding payments to Edward H. Meyer & Son to the identified payments.) Jones notes that White has not produced the lease under which Edward H. Meyer & Son purportedly received payments, and that the transfers were not made to her. However, Jones testified at her deposition that the foregoing monthly payments to Edwin H. Meyer & Son were to her landlord for rent and were made by John Butler throughout 2008. White is not required to produce the lease in order to demonstrate that the payments to Jones's landlord were for her benefit.
An additional check was written to Jones, check number 1050 dated July 1, 2008, for $1,045. This check is in the amount of several of the other rent checks. In any event, such payment was directly to Jones.
Jones questions the propriety of White's asserting that $11,666.72 is the amount of payroll transfers at issue. According to Jones, only transfers of $8,859 could be the subject of an 11 U.S.C. § 549 action. Her calculation differs from White's for two reasons.
First, Jones has excluded in her calculation her pay for the pay period ending on March 16, 2008, as barred by the statute of limitations of 11 U.S.C. § 549(d) (), but that payment was made by Butler Innovative on March 26, 2008, and thus is not barred by the statute of limitations.3
Second, Jones has included only the net amount of pay she received after payroll deductions. For each of the eight payrolls for which Jones received payments after the date of the order for relief, the gross amount of wages Jones earned for each payroll after the entry of the order for relief was $1,458.34, which produces a total amount of $11,666.72 in gross wages paidvia the eight payroll transfers at issue.
The proper total of the transfers includes the amounts that Paychex deducted from Jones's gross pay for her benefit, not just the net amount deposited in her account after those payroll deductions. White has not shown that Butler Innovative (or Paychex on Butler Innovative's behalf) transferred the withheld items to the entities to whom the funds were supposed to be transferred for the benefit of Jones. Nevertheless, for the reasons that follow, it is apparent from the record that the amounts withheld from Jones's pay were in large part demonstrably for her benefit and conferred a benefit on her, and that the remaining amounts presumably were also withheld for her benefit and likely conferred a benefit on her. However, because White failed to brief this issue, Jones had no occasion to argue that the withholdings did not benefit her, and I will allow her to supplement her opposition to address any flaw in my reasoning.
"Once net wages are paid to the employee, the taxes withheld are credited to the employee regardless of whether they are paid by the employer, so that the IRS has recourse only against the employer for their payment." Slodov v. United States, 436 U.S. 238, 243, 98 S.Ct. 1778, 56 L.Ed.2d 251 (1978). The amounts withheld from Jones for obligations she was required to meet incident to her receiving wages (such as Social Security andMedicare taxes) satisfied her obligation in that regard and thus conferred a benefit on her in the same amount. Similarly, she was entitled to a credit as to her income tax liabilities for the year 2008 for the income taxes withheld from her pay, and thus those income tax withholdings conferred a benefit on her in the same amount.
Moreover, under Begier v. Internal Revenue Service, 496 U.S. 53, 62, 110 S.Ct. 2258, 110 L.Ed.2d 46 (1990) (), the rule is that "§ 7501 creates a trust in an abstract 'amount'-a dollar figure not tied to any particular assets-rather than in the actual dollars withheld." Despite the employer's failure to place the collected and withheld taxes in a segregated account, a trust is created. Id. at 60. The Begier analysis also applies to Pennsylvania state withholding taxes withheld from Jones's salary. City of Farrell v. Sharon Steel Corp., 41 F.3d 92 (3d Cir. 1994). Accordingly, with respect to the amounts withheld that should have been transmitted to the Internal Revenue Service or the state of Pennsylvania, White can show that a benefit was conferred on Jones if assets existed that could be subjected to such a Begier trust upon Butler Innovative paying net pay to Jones. We know that Butler Innovative had sufficient funds on hand to cover the payroll taxes withheld from Jones for the firstseven post-order-for-relief payroll payments because, for each of those, there followed a later payroll for which funds were paid out that exceeded the amounts withheld from Jones. And for the eighth (and final) payroll, Butler...
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