Wednesday, October 19, 2011
U.S. v. CUDA, Cite as 108 AFTR 2d 2011-XXXX, 10/04/2011
UNITED STATES OF AMERICA, Plaintiff, v. ANTHONY D. CUDA and BRIAN DANKIS, Defendants.
Court Name: IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA,
Docket No.: Civil Action No. 10-617,
Date Decided: 10/04/2011.
IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA,
amount due to the IRS.” Brounstein v. United States, 979 F.2d 952, 954 [71 AFTR 2d 93-1714] (3d Cir. 1992).
i. The “Responsible Person” Standard
A “responsible person” for the purposes of § 6672 is any corporate employee or officer with a duty to “collect, truthfully account for, or pay over any tax due the United States.” Greenberg, 46 F.3d at 242–43 (quoting United States v. Carrigan, 31 F.3d 130, 133 [74 AFTR 2d 94-5425] (3d Cir. 1994)). Responsibility arises from an employee's “status, duty, or authority” rather than his or her knowledge. Greenberg, 46 F.3d at 243. To be considered a responsible person under § 6672, a person does not need to have exclusive control over his or her company's finances, but merely significant control. Vespe, 868 F.2d at 1332.
Significant control is established when a person has the last say or significant input about which bills or creditors are to be paid. Quattrone Accountants, Inc. v. I.R.S., 895 F.2d 921, 927 [65 AFTR 2d 90-580] (3d Cir. 1989). The Court of Appeals has also held that when determining whether a person has significant control, the following factors should be considered: “(1) the duties of the officer as outlined by the corporate by-laws; (2) the ability of the individual to sign checks of the corporation; (3) the taxpayer's signature on the employer's federal employment or other tax returns; (4) the identity of the officers, directors and shareholders of the corporation; (5) the identity of the individuals who hired and fired employees; and (6) the identity of the individual(s) who were in charge of the financial affairs of the corporation.” Carrigan, 31 F.3d at 133;accord Mitchell , 82 Fed. Appx. at 785. 7
Cuda has admitted that he qualifies as a “responsible person” for purposes of § 6672. (See Docket No. 37 at 2). Thus, the first element of liability under § 6672 is not at issue here. The question is whether Cuda's actions were willful, such that he could be exposed to liability.
ii. The Willfulness Standard
Although Cuda does not challenge his status as a “responsible person,” he does argue that he was not willful in SAES's failure to pay its taxes. A willful act for 26 U.S.C. § 6672 purposes occurs when a responsible person makes “a voluntary, conscious and intentional decision to prefer other creditors over the government.” Quattrone, 895 F.2d at 928. This can include paying net wages to employees while there are outstanding payroll taxes. Greenberg, 46 F.3d at 244. Thus, knowledge of unpaid taxes and the conscious decision to pay other creditors before paying the United States constitutes willfulness. See Quattrone, 895 F.2d at 928 (citing Wall v. United States, 592 F.2d 154, 163 [43 AFTR 2d 79-502] (3d Cir. 1979)).
A responsible person can also act willfully when he or she displays “reckless disregard for whether taxes have been paid.” Brounstein, 979 F.2d at 956. The reckless disregard standard is met when the taxpayer: “(1) clearly ought to have known that (2) there was a grave risk that withh[eld] taxes were not being paid and ... (3) he was in a position to find out for certain very easily.”Carrigan , 31 F.3d at 134 (quoting Wright v. United States, 809 F.2d 425, 427 [59 AFTR 2d 87-467] (7th Cir. 1987)). This standard can also be met when a responsible person is given notice that payroll taxes are not being paid, but takes no steps to investigate the situation or correct mismanagement.Greenberg , 46 F.3d at 244 (quoting Morgan v. United States, 937 F.2d 281, 286 [68 AFTR 2d 91-5491] (5th Cir. 1991)).
A responsible person's action or inaction does not need to be performed with bad intent for it to be considered willful.Greenberg , 46 F.3d at 244. It is sufficient that the responsible person acted knowingly or recklessly.Id.
1. Knowledge and Payments to Other Creditors
Cuda claims that “[t]he record establishes that [he] did not have knowledge that taxes were not being paid during 2005.” (Docket No. 37 at 3). A true lack of knowledge would immunize him from liability for the unpaid taxes. However, the Court finds that there is no genuine issue of fact as to whether Cuda was aware of the unpaid taxes. By Cuda's own admission, he was made aware of the IRS demand for payments as early as July 2005. (Docket No. 38 at ¶ 19). 8 With this knowledge, Cuda should have opted to pay SAES's federal taxes. Instead, SAES continued to pay off its other creditors. For example, the United States has submitted checks dated after Cuda admitted to knowledge of the tax obligations. (See, e.g., Docket No. 33-12 at 3–14, 27, 29–34). Cuda testified at his deposition that he signed several checks on dates in September, October, November and December of 2005. (Cuda Dep. at 104:2–111:6). Therefore, checks were signed and issued after Cuda, a “responsible person,” became aware of the unpaid taxes. By Cuda's own admission, some of these checks were signed by him. (Id.). Thus, Cuda was a “responsible person”, (Docket No. 37 at 2), who had knowledge of unpaid taxes, (Docket No. 38 at ¶ 19), and who chose to pay other debtors before paying off SAES's tax liabilities. (See Cuda Dep. at 104:2–111:6; Docket No. 33-12). All of these uncontested facts are derived from Cuda's own deposition or statement of facts. Cuda has, thus, established his liability through his own admissions, and, therefore, there are no disputes over the material facts as to Cuda's liability.
Further, when “an individual has been a responsible person throughout the period when the taxes should have been collected and paid, but did not have knowledge of the tax delinquency until later, he has a duty to pay over all after-acquired funds to the IRS.” In re Branagan, 345 B.R. 144, 168 [97 AFTR 2d 2006-2642] (E.D.Pa. 2006) (citing Vespe, 868 F.2d at 1334). Cuda admits to learning of the unpaid taxes in July 25 – after both the March and June tax periods — and was, therefore, under a duty to pay off these debts with after-acquired funds. As indicated by the copies of checks submitted by the United States, (see Docket No. 33-12; Cuda Dep. at 104:2–111:6), Cuda used the after-acquired funds to pay off other creditors before (or without) paying off the United States. (Id.). Again, the facts are not in dispute and support a finding of liability.
Cuda attempts to protect himself from liability by arguing that he was in some way misled by Dankis or that the Court should not rely on Dankis's testimony. (Docket No. 37 at 3–4). Cuda's arguments are misplaced. First, whether or not Dankis failed to pay taxes, (id. at 4), is not relevant to Cuda's liability. See Hagen, 485 F.Supp.2d at 628 ( Section 6672 “applies to all responsible persons, and not just the most responsible person.”). Assurances of another that taxes will be taken care of is not a defense to liability under § 6672. Greenberg, 46 F.3d at 244 (citing Denbo v. United States, 988 F.2d 1029, 1033 [71 AFTR 2d 93-1317]–34 (10th Cir. 1993)). Second, the Court's finding of liability is based on Cuda's own admissions, not statements made by Dankis. Assertions, at the summary judgment stage, that are contrary to those made at deposition are not sufficient to create a material dispute of fact. Cf. Martin v. Merrell Dow Pharmaceuticals, Inc., 851 F.2d 703, 705 (3d Cir. 1988) (finding that a party cannot create a dispute of material fact by “flatly contradict[ing]” earlier sworn statements). Once Cuda was made aware of the unpaid taxes, it was his duty to ensure that they were paid — before any other creditors of SAES were paid. He failed in that duty.
A responsible party may be found willful for recklessness when the taxpayer “(1) clearly ought to have known that (2) there was a grave risk that withh[eld] taxes were not being paid and ... (3) he was in a position to find out for certain very easily.” Carrigan, 31 F.3d at 134 (quotingWright v. United States , 809 F.2d 425, 427 [59 AFTR 2d 87-467] (7th Cir. 1987)). In the Court's mind, this is where Dankis's May 2005 e-mail becomes particularly relevant. Cuda admits to receiving an e-mail from Dankis that references Dankis's “irresponsible management with the taxes...” (Docket No. 33-4 at 94:2–14). This e-mail was dated May 18, 2005. (Id. at 94:25–95:2).
Cuda claims that he was confused as to the meaning of this e-mail. (See Cuda Dep. at 94:15–24). It is clear from the record that the responsibilities of office manager were not transferred to Dankis until 2004. (See Dankis Dep. 13:15–22; Benincosa Dep. at 26:14–22). This post-dates Cuda's awareness of SAES's earlier, 2003, tax problems. (Cuda Dep. 39:22–40:8; 67:23–68:12; 68:23–69:13). Thus, Dankis's reference to hisown irresponsible management of taxes in 2005, as distinguished from the 2003 problems that occurred before Dankis took over as office manager, “clearly ought to have” made Cuda aware that “there was a grave risk that withh[eld] taxes were not being paid.”Carrigan , 31 F.3d at 134. Cuda, as Operations Director and Chief, was clearly “in a position to find out for certain very easily.” Id. He did not do so. His failure to do so, regardless of intent, is enough, in this Court's estimation, to establish willful recklessness.Greenberg , 46 F.3d at 244.