Skoczylas v. United States of America, No. 1:2009cv02035 - Document 52 (E.D.N.Y. 2012)

Court Description: ORDER denying 26 Motion for Summary Judgment; denying 27 Motion for Summary Judgment. Ordered by Judge I. Leo Glasser on 12/3/2012. (Levy, Joshua)

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Skoczylas v. United States of America Doc. 52 UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK ------------------------------------------------------x SKOCZYLAS, MEMORANDUM AND ORDER Plaintiff, 0 9 Civ. 20 35 (ILG) (RML) - against UNITED STATES OF AMERICA, Defendant and Counter-Claim ant, - against BREEN, et al. Counter-Defendants, ------------------------------------------------------x GLASSER, Sen ior United States District J udge: Plaintiff Dvora Skoczylas (“Skoczylas” or “plaintiff”) brings this action to abate a trust fund recovery penalty that the Internal Revenue Service (“IRS”) assessed against her pursuant to § 6672 of the Internal Revenue Code of 1986, as am ended (the “Code”), and to recover partial paym ents she m ade to satisfy this pen alty. The governm ent brings counterclaim s against both Skoczylas and J ohn Breen (“Breen”) for full paym ent of assessed tax pen alties with interest. Currently before the Court are m otions an d cross-m otions for sum m ary judgm ent by all parties. For the reasons that follow, Skoczylas’ m otion is DENIED, the governm ent’s m otion against Skoczylas is DENIED, Breen’s m otion is GRANTED in part and DENIED in part, and the governm ent’s m otion against Breen is GRANTED in part and DENIED in part. I. BACKGROU N D A. Facts 1 Dockets.Justia.com Unless otherwise noted, the following facts are undisputed. Long Island Health Associates Corp. (“LIHAC”) was form ed in 1996 with two shareholders, Dr. Irwin Mansdorf and Dr. Tali Skoczylas, plaintiff’s husband, to acquire Hem pstead General Hospital (“HGH”) out of bankruptcy. Certification of J erem y M. Klausner dated Mar. 19, 20 12 (“Klausner Cert.”), Ex. 1 (Lanzafam e Dep.), at 8-14, 19; Ex. 3 ¶ 2 (Dkt. Nos. 264, 26-6). Shortly thereafter, Dr. Skoczylas transferred his 50 % stake in LIHAC to his wife, the plaintiff (hereinafter “Skoczylas”), for no consideration. Id., Ex. 1 (Lanzafam e Dep.), at 19-20 ; Ex. 4 (Skoczylas Dep.), at 16. After acquiring the shares, Skoczylas served on LIHAC’s Board of Directors as Chairm an or President of the Board. Id., Ex. 4 (Skoczylas Dep.), at 12. Skoczylas received no com pensation or reim bursem ents for her services as a director of LIHAC, an d received no dividends from her ownership of LIHAC stock. Dvora Skoczylas’ Statem ent of Material Facts in Support of Motion for Sum m ary J udgm ent dated Mar. 19, 20 12 (“Pl.’s 56.1”) ¶¶ 37-39 (Dkt. No. 26-1). In 1999, LIHAC com pleted its acquisition of HGH an d changed the hospital’s nam e to Island Medical Center (“IMC”). Klausner Cert., Ex. 1 (Lanzafam e Dep.), at 10 -11; Pl.’s 56.1 ¶ 25. In J uly 20 0 0 , Dr. Mansdorf transferred his shares of LIHAC to Skoczylas for no consideration because he was leaving the country, m aking Skoczylas the 10 0 % shareholder effective Novem ber 2, 20 0 0 . Pl.’s 56.1 ¶¶ 73-75, 95. During her tenure as a director of LIHAC, Skoczylas attended every Board m eeting. Id. ¶¶ 68-69. At the J uly 25, 20 0 0 Board m eeting, then-Chief Financial Officer (“CFO”) Walter Schatz (“Schatz”) “painted a grim picture of LIHAC’s financial condition” and “stated that the adm inistration was very concerned with m eeting payroll and payroll tax obligations.” Id. ¶ 72. In August 20 0 0 , LIHAC began to contem plate bankruptcy. Klausner Cert., Ex. 18 . At an em ergency Septem ber 7, 20 0 0 Board 2 m eeting, both the Board and m anagem ent agreed that bankruptcy was the only viable financial option. Pl.’s 56.1 ¶ 85. On October 3, 20 0 0 , LIHAC filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code. Id. ¶ 86. From October 20 0 0 through about Decem ber 20 0 3, LIHAC operated as a debtor-in -possession. Id. ¶ 96. As a debtor-in-possession, LIHAC was required to file Monthly Operating Reports (“MORs”) with the bankruptcy court. Id. ¶ 97. These reports contained tax inform ation, am ong other things, and were prepared and signed by Schatz from October 20 0 0 through February 20 0 1. United States’ Local Rule 56.1(a) Statem ent dated Mar. 22, 20 12 (“Gov’t’s 56.1”) ¶¶ 12-14 (Dkt. No. 27-2). 1 On or about Septem ber 1, 20 0 1, Schatz hired Gary Hung (“Hung”) as LIHAC’s Controller and Schatz resigned a few weeks later. Pl.’s 56.1 ¶¶ 10 2, 10 4. Hung’s staff prepared the MORs for the rem ainder of the debtor-in-possession period, subject to review by Hung. Declaration of Attorney Reiser dated J uly 12, 20 12 (“Reiser Decl.”), Ex. 7 (Hung Dep.), at 177-79 (Dkt. No. 43-9). Hung officially becam e CFO around May 20 0 3, but this was m erely a title change because “Controller and CFO were the sam e thing.” Pl.’s 56.1 ¶¶ 168, 170 . In Septem ber 20 0 1, then-CEO David Bukstel (“Bukstel”) hired Breen as Chief Operating Officer (“COO”) to “oversee the clin ical operations of the hospital,” ensure regulatory com pliance, and act as “an assistant to the CEO.” Reiser Decl., Ex. 1 (Breen Dep.), at 15-16. In May 20 0 2, Bukstel resigned and Breen was prom oted to CEO effective J une 1, 20 0 2. Id. As CEO, Breen hired both financial and operations personnel. Although he did not becom e CEO until J une 20 0 2, Breen signed MORs from 1 After LIHAC declared bankruptcy, it experienced m anagem ent changes in 20 0 0 and 20 0 1 an d attem pted to attain not-for-profit status, which has no relevance to this action. Gov’t’s 56.1 Opp’n ¶¶ 8 7, 8 9, 92-94, 10 0 , 122-23. 3 Decem ber 20 0 1 through Decem ber 20 0 2 because the MORs from Decem ber 20 0 1 through J une 20 0 2 were not filed until after he becam e CEO. Id. at 46-47, 241; Gov’t’s 56.1 ¶¶ 14, 36. As Controller, Hung oversaw LIHAC’s payroll departm ent from Septem ber 20 0 1 through August 20 0 3. Pl.’s 56.1 ¶ 177. Hung’s staff prepared, signed, and filed IRS Form s 941 on behalf of LIHAC under his supervision. 2 United States’ Local Rule 56.1(b) Statem ent of Genuine Issues to be Tried dated J uly 6, 20 12 (“Gov’t’s 56.1 Opp’n”) ¶ 184 (Dkt. No. 36-1). Hung’s staff, also under his supervision, transm itted funds to the IRS for payroll taxes each quarter; if there was a balance of payroll taxes due at the end of the quarter, Hung’s staff was supposed to write a check to the IRS to cover it. Id. ¶¶ 1858 6. But, during Hung’s tenure at the hospital, there were tim es when there were insufficient funds to cover the payroll taxes. Pl.’s 56.1 ¶ 194. As a result, Hung independently decided that LIHAC should pay its payroll expenses before its payroll taxes during the first three quarters of 20 0 2 and the first two quarters of 20 0 3. Id. ¶ 199. He testified: Q. What was your testim ony? A. Okay. My testim ony was that I paid payroll first and paid the payroll taxes when we can pay them . Q. But that was your decision; correct? A. Yes. Because the m oney was there I had to pay payroll first. Q. Did anyone help you? A. No. Because payroll had to go first. Q. So you did m ake that decision on your own? A. To pay payroll, yes. 2 IRS Form 941 is an em ployer’s quarterly federal tax return. Em ployers are required to withhold payroll taxes from em ployees and report them quarterly on Form 941. See 26 U.S.C. §§ 310 2(a), 750 1(a); 26 C.F.R. § 31.60 11(a)-4. 4 Reiser Decl., Ex. 7 (Hung Dep.), at 186-87. Because Hung decided to pay payroll expen ses first and there were insufficient funds to cover both payroll expenses and the payroll taxes, LIHAC did not fully pay federal payroll taxes in the first three quarters of 20 0 2 an d the first two quarters of 20 0 3. Id. at 96-99; Pl.’s 56.1 ¶ 222. As LIHAC’s finances continued to deteriorate, IMC ceased operations on J uly 24, 20 0 3, Hung was laid off in August 20 0 3, and LIHAC’s Chapter 11 bankruptcy was converted to a Chapter 7 bankruptcy on Decem ber 2, 20 0 3. Pl.’s 56.1 ¶ 20 6-0 7, 213. B. D is p u te d Facts The parties dispute Breen’s knowledge of LIHAC’s failure to pay federal payroll taxes in 20 0 2 and 20 0 3. Breen testified that he “had regular discussions with Gary Hung about the hospital’s financial condition, which included discussions about all liabilities and specifically the tax liability.” Reiser Decl., Ex. 1 (Breen Dep.), at 10 2. He claim s that he had no knowledge of any unpaid federal tax liabilities until late 20 0 3 because of Hung’s assurances and the m isleading reports Hung prepared. Id. at 10 3-0 4; Ex. 3. Breen also testified that he thought payroll taxes were paid because he saw wire transfers to the IRS on operating statem ents, but was not aware that these were only partial paym ents by Hung. Id., Ex. 1 (Breen Dep.), at 65-70 . Contrarily, Hung claim s that he inform ed Breen at som e point in 20 0 2 that taxes were not paid. Id., Ex. 7 (Hung Dep.), at 117. He testified: Q. A. Q. A. What exactly did you say to Mr. Breen at this m eeting in his office? That taxes weren’t paid. “We’re not current with the tax liabilities.” What did Mr. Breen say? He didn’t say anything at all. Id. at 117-18 . The governm ent also contends that Breen was aware of the unpaid taxes because each MOR filed with the bankruptcy court, m ost of which Breen signed, 5 “contained a schedule of Post-Petition Taxes that revealed escalating balances of unpaid federal em ploym ent tax liabilities for the periods from J anuary 1, 20 0 2 through Decem ber 31, 20 0 2.” Gov’t’s 56.1 ¶ 43. Breen counters that the Post-Petition Taxes docum ent appended to the MORs did not show that that there were unpaid federal em ploym ent taxes, and that he lacked the financial sophistication to understand payroll tax inform ation. Response on Behalf of J ohn Breen to United States Local Rule 56.1 Statem ent dated J uly 12, 20 12 (“Breen’s 56.1 Opp’n”) ¶ 43 (Dkt. No. 41); Reiser Decl., Ex. 1 (Breen Dep.), at 17-23, 44-45, 178. The parties also dispute Skoczylas’ role, knowledge, and level of involvem ent in LIHAC throughout the debtor-in -possession period from October 20 0 0 through about Decem ber 20 0 3. While the parties agree that Skoczylas was involved in LIHAC’s decision to declare bankruptcy, Pl.’s 56.1 ¶¶ 78 , 8 5, she claim s that she had “no role” afterwards an d was not involved in the decision to term inate the hospital’s m anagem ent com pany, hire a new m anagem ent com pany, or hire a new CEO because she was cut out of the decision-m aking process. Id. ¶¶ 8 1, 8 3, 89-90 , 92-94. The governm ent disputes this, arguing that Skoczylas was involved in the decision to hire a new m anagem ent com pany and that she signed MORs from March 20 0 1 through Novem ber 20 0 1. Gov’t’s 56.1 Opp’n ¶¶ 81, 83, 89, 92-94, 99. The parties agree that Skoczylas was not involved in hiring Hung, Pl.’s 56.1 ¶ 10 3, but dispute whether she was involved in hiring Breen or prom oting him to CEO. Gov’t’s 56.1 Opp’n ¶¶ 111, 115-17; Dvora Skoczylas’ Reply Statem ent of Material Facts in Support of Motion for Sum m ary J udgm ent dated Aug. 5, 6 20 12 (“Pl.’s 56.1 Reply”) ¶¶ 111, 117 (Dkt. No. 48 -1). 3 The parties agree that Breen signed the MORs once he becam e CEO, Pl.’s 56.1 ¶¶ 119, 121, but they dispute whether he provided them to Skoczylas. Gov’t’s 56.1 Opp’n ¶ 120 . Skoczylas argues that as CEO, Breen reported to a group of creditors term ed the “Parties in Interest,” not the Board, and she was cut out of all m anagem ent functions, Pl.’s 56.1 ¶¶ 128 -46, 154-67, which the governm ent disputes. Gov’t’s 56.1 Opp’n ¶¶ 128-37, 143-46, 159-60 . The governm ent argues that Skoczylas was involved in financial m anagem ent because her signature appears on every payroll check, she had check-signing authority over LIHAC’s bank accounts, and she signed LIHAC’s corporate tax return in 20 0 0 . Gov’t’s 56.1 Opp’n ¶¶ 18 2-8 3; Gov’t’s 56.1 ¶¶ 20 -21. Skoczylas coun ters that she was unaware of the printed signature on the payroll checks, she only technically had authority over LIHAC’s bank accounts, which she did not use, and her tax return signature was purely m inisterial. Pl.’s 56.1 Reply ¶ 183; Plaintiff’s Opposition to Defendant’s Statem ent of Material Facts dated J uly 6, 20 12 (“Pl.’s 56.1 Opp’n”) ¶¶ 20 -21 (Dkt. No. 35-2). The parties agree that from Septem ber 20 0 2 through Decem ber 20 0 2, the IRS corresponded with Hung regarding LIHAC’s unfiled payroll tax returns. Reiser Decl., Ex. 4. Hung testified that he stored all IRS corresponden ce in a filin g cabin et and did not share it with Breen or the Board, including Skoczylas. Id., Ex. 7 (Hung Dep.), at 8 990 , 92-94. As a result, the correspondence was not discovered until Septem ber 20 0 3 by a financial consultant, at which point Breen contacted the IRS. Reiser Decl., Ex. 6 ¶ 10 . Breen testified that he offered to pay part of the delinquent tax liability using LIHAC’s available funds, but the IRS could not accept paym ent because the funds were 3 Although Local Civil Rule 56.1 does not require a reply statem ent of facts by the m ovant, it also does not forbid it. Therefore, the Court will consider reply statem ents of facts. 7 encum bered by the bankruptcy. Reiser Decl., Ex. 1 (Breen Dep.), at 85-86. The governm ent disputes this, arguing that LIHAC had access to nearly $ 2 m illion in unrestricted funds that Breen did not use to satisfy the tax liability. Gov’t’s 56.1 ¶ 45. Skoczylas testified that when she was inform ed of the tax liability, she asked Breen if LIHAC could use its rem aining funds to pay the IRS, but Breen replied that it could not due to the bankruptcy. Klausner Cert., Ex. 4 (Skoczylas Dep.), at 8 4-85. C. Pro ce d u ral H is to ry In late 20 0 4, the IRS Revenue Officer assigned to this case contacted Skoczylas regarding potential personal liability for LIHAC’s unpaid payroll taxes under § 6672 of the Code. Pl.’s 56.1 ¶ 215. On Septem ber 12, 20 0 6, the Revenue Officer sent Skoczylas a letter proposing to assess a penalty against her pursuant to § 6672. Klausner Cert., Ex. 39. On Novem ber 10 , 20 0 6, Skoczylas protested the penalty, and on February 11, 20 0 8 the IRS rejected the protest. Id., Exs. 40 -41. On J uly 31, 20 0 8, Skoczylas appealed the penalty to the IRS Appeals Office, which declined to abate the penalty on Novem ber 17, 20 0 8. Id., Exs. 42-43. In Decem ber 20 0 8, the IRS assessed the penalty against Skoczylas, and on J anuary 12, 20 0 9, Skoczylas subm itted IRS Form 843 requesting a refund and abatem ent. Id., Ex. 44. After exhausting her adm inistrative rem edies within the IRS, Skoczylas initiated this action to “abate the rem aining outstanding balance of the Trust Fund Recovery Penalties assessed against” her an d to recover m oney already paid to satisfy the penalties. Com plaint dated May 13, 20 0 9 (“Com pl.”) ¶¶ 4, 53 (Dkt. No. 1). 4 In respon se, the governm ent brought counterclaim s for full paym ent of the penalties with interest 4 The Com plaint refers to “Trust Fund Recovery Penalties” because payroll taxes that em ployers deduct from em ployees’ wages are held by the em ployer in a special trust fund for the governm ent’s benefit. See 26 U.S.C. § 750 1. 8 and interpleaded Breen. United States’ First Am ended Answer and Counterclaim s dated J une 18 , 20 10 (“Countercl.”) (Dkt. No. 12). On March 19, 20 12, Skoczylas m oved for sum m ary judgm ent on her claim s against the governm en t. Mem orandum of Law in Support of Dvora Skoczylas’ Motion for Sum m ary J udgm ent (“Pl.’s Mem .”) (Dkt. No. 26-2). The governm ent filed its opposition to Skoczylas’ m otion on J uly 6, 2012, United States’ Mem orandum of Law in Opposition to Plaintiff’s Cross Motion for Sum m ary J udgm ent (“Gov’t’s Opp’n”) (Dkt. No. 36), and Skoczylas filed her reply on August 5, 20 12. Reply Mem orandum of Law in Further Support of Dvora Skoczylas’ Motion for Sum m ary J udgm ent (“Pl.’s Reply”) (Dkt. No. 48). On March 22, 20 12, the governm ent m oved for sum m ary judgm ent against both Skoczylas and Breen. Mem orandum of Law in Support of the United States’ Motion for Summ ary J udgm ent as to Dvora Skoczylas an d J ohn Breen (“Gov’t’s Mem .”) (Dkt. No. 27-1). Skoczylas filed her opposition to the governm ent’s m otion on J uly 6, 20 12, Dvora Skoczylas’ Mem orandum of Law in Opposition to United States’ Motion for Sum m ary J udgm ent (“Pl.’s Opp’n”) (Dkt. No. 35), and the governm ent filed its reply on August 5, 20 12. United States’ Reply to Dvora Skoczylas’ Mem orandum of Law in Opposition to United States’ Motion for Sum m ary J udgm ent (“Gov’t’s Reply to Pl.”) (Dkt. No. 47). On J uly 11, 20 12, Breen m oved for sum m ary judgm ent against the governm ent and opposed the governm ent’s m otion in the sam e filing, Mem orandum of Law on Behalf of J ohn Breen in Opposition to the Motion of the United States for Sum m ary J udgm ent (“Breen’s Opp’n”) (Dkt. No. 40 ), 5 and the governm ent responded 5 Breen’s m otion for sum m ary judgm ent, despite spann ing 79 pages, does not contain a statem ent of m aterial facts in num bered paragraphs as required by Local Civil Rule 56.1(a). “Failure to subm it such a statem ent m ay constitute grounds for denial of the m otion.” Local Civ. R. 56.1(a). Nonetheless, for the sake of efficiency and in light of 9 on August 31, 20 12. United States’ Reply to J ohn Breen’s Mem oran dum of Law in Opposition to United States’ Motion for Summ ary J udgm ent (“Gov’t’s Reply to Breen”) (Dkt. No. 51). II. Le gal Stan d ard s A. Se ctio n 6 6 72 Section 6672(a) provides, in relevant part, that: Any person required to collect, truthfully account for, and pay over any tax im posed by this title who willfully fails to collect such tax, or truthfully account for and pay over such tax, or willfully attem pts in any m anner to evade or defeat an y such tax or the paym ent thereof, shall . . . be liable to a penalty equal to the total am ount of the tax evaded, or not collected, or not accounted for an d paid over. “[U]nder section 6672(a), an individual m ay be held liable for unpaid withholding taxes if: (1) he or she was a ‘responsible person’ for collection and paym ent of the em ployer’s taxes; and (2) he or she ‘willfully’ failed to com ply” with statutory withholding tax requirem ents. Winter v. United States, 196 F.3d 339, 344 (2d Cir. 1999). “The assessm ent of the tax creates a prim a facie case of liability, and the person against whom the penalty is levied bears the burden of establishing by a preponderance of the eviden ce that at least one of the two elem ents of section 6672 liability does n ot exist.” Schwinger v. United States, 652 F. Supp. 464, 466 (E.D.N.Y. 1987). Although “[n]o single factor is dispositive in evaluating whether an individual” is a “responsible person” within the m eaning of § 6672(a), “the determ inative question is whether the individual has significant control over the enterprise’s finances.” Winter, 196 F.3d at 345 (internal quotation om itted). To answer this question, the Second the volum inous record, the Court will decide Breen’s m otion in conjunction with the other parties’ m otions. 10 Circuit has developed a seven-factor test that directs courts to look at whether the individual: (1) is an officer or m em ber of the board of directors, (2) owns shares or possesses an entrepreneurial stake in the com pany, (3) is active in the m anagem ent of day-to-day affairs of the com pany, (4) has the ability to hire and fire em ployees, (5) m akes decisions regarding which, when and in what order outstanding debts or taxes will be paid, (6) exercises control over daily bank accounts and disbursem ent records, and (7) has checksigning authority. Id. (internal quotation om itted). “Even a responsible person m ay not be held personally liable under section 6672(a) unless his or her failure to collect, account for, or rem it withholding taxes was willful.” Id. “The prin cipal com ponent of willfulness is knowledge: a responsible person acted willfully within the m eaning of § 6672(a) if he [or she] (a) knew of the com pany’s obligation to pay withholding taxes, and (b) knew that com pany funds were being used for other purposes instead.” United States v. Rem , 38 F.3d 634, 643 (2d Cir. 1994). “Willful conduct m ay also include a reckless disregard for obvious and known risks as well as a failure to investigate after having notice that withholding taxes have not been rem itted to the Governm ent.” Winter, 196 F.3d at 345 (quotations om itted). However, a responsible person will not be held personally liable under § 6672(a) if he or she reasonably believed that taxes were being paid. Id. at 345-36 (discussing a lim ited “‘reasonable cause’ exception to section 6672(a) liability”). B. Su m m ary Ju d gm e n t Sum m ary judgm ent is appropriate “if the m ovant shows that there is no genuine dispute as to any m aterial fact and the m ovant is entitled to judgm ent as a m atter of law.” Fed. R. Civ. P. 56(a). “An issue of fact is genuine if the eviden ce is such that a 11 reasonable jury could return a verdict for the nonm oving party. A fact is m aterial if it m ight affect the outcom e of the suit under the governing law.” Fincher v. Depository Trust & Clearing Corp., 60 4 F.3d 712, 720 (2d Cir. 20 10 ) (internal quotation om itted). The m oving party bears the burden of establishing the absence of any genuine issue of m aterial fact. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (198 6). When the burden of proof at trial would fall on the non-m oving party, it ordinarily is sufficient for the m ovant to point to a lack of evidence to go to the trier of fact on an essential elem ent of the non-m ovant’s claim . Id. at 322-23. To defeat a m otion for sum m ary judgm ent, the non-m oving party “m ust do m ore than sim ply show that there is som e m etaphysical doubt as to the m aterial facts,” Matsushita Elec. Indus. Co. v. Zen ith Radio Corp., 475 U.S. 574, 586-87 (1986)), and cannot “rely on conclusory allegations or unsubstantiated speculation.” Brown v. Eli Lilly & Co., 654 F.3d 347, 358 (2d Cir. 20 11) (internal quotation om itted). However, under § 6672(a), “[t]he person again st whom the IRS assesses a § 6672 tax penalty has the burden of disproving [the tax liability], by a preponderance of the evidence.” Fiataruolo v. United States, 8 F.3d 930 , 938 (2d Cir. 1993). A court deciding a m otion for sum m ary judgm ent m ust “construe the facts in the light m ost favorable to the non-m oving party and m ust resolve all am biguities and draw all reasonable inferences against the m ovant.” Brod v. Om ya, Inc., 653 F.3d 156, 164 (2d Cir. 20 11) (internal quotation om itted). “Credibility determ inations, the weighing of the eviden ce, and the drawing of legitim ate inferences from the facts are jury functions, not those of a judge.” Reeves v. Sanderson Plum bing Prods., Inc., 530 U.S. 133, 150 (20 0 0 ). “In the context of a section 6672(a) dispute, . . . sum m ary judgm ent is appropriate where there are no genuine questions as to the assessed individual’s control 12 of com pany funds an d decision m aking authority, his or her knowledge of the deflection of com pany funds to payees other than the IRS, or the existence or reasonablen ess of his or her belief that the taxes were, in fact, being paid.” Winter, 196 F.3d at 346. “A court m ay grant sum m ary judgm ent as to willfulness ‘only when the facts are undisputed and application of the law to those facts will reasonably support only one ultim ate conclusion.’” Reiff v. United States, 461 F. Supp. 2d 142, 154 (S.D.N.Y. 20 0 6) (quoting Winter, 196 F.3d at 347). While the individual has the burden of proof, if “the individual’s position m akes his [or her] claim of ignorance of nonpaym ent plausible and there are no other indicia of knowledge,” Rem , 38 F.3d at 644, then “a question of fact exists as to willfulness.” Reiff, 461 F. Supp. 2d at 154. III. D is cu s s io n A. D vo ra Sko czylas Skoczylas argues that she is not a “responsible person” under § 6672 and that even if the Court finds otherwise, it should still grant sum m ary judgm ent in her favor “because she did not willfully fail to pay over LIHAC’s trust fund taxes.” Pl.’s Mem . at 1. The governm ent contends that Skoczylas is a “responsible person” who willfully failed to pay LIHAC’s taxes, so the Court should deny Skoczylas’ m otion and grant sum m ary judgm ent in the governm ent’s favor. Gov’t’s Opp’n at 1; Gov’t’s Mem . at 18 -19, 23-24. The Court finds the existence of genuine disputes as to m aterial facts and den ies both parties’ m otions. 1. “Re s p o n s ible Pe rs o n ” Under the Second Circuit’s seven-factor test, two factors weigh in favor of the governm ent, two factors weigh in favor of Skoczylas, and three factors turn on disputed 13 issues of m aterial fact. Therefore, sum m ary judgm ent for either party under § 6672 is not appropriate. i. Office r o r Me m be r o f th e Bo ard o f D ire cto rs The parties agree that Skoczylas was a m em ber of the Board of Directors and President of LIHAC. Gov’t’s 56.1 Opp’n ¶¶ 15, 17. Although they dispute the reach of the title “President” and the im portance of how frequently the Board m et or that Skoczylas’ position was unpaid, Pl.’s Mem . at 6-9; Gov’t’s Opp’n at 5-6; Pl.’s Reply at 4, the dispute is irrelevant because the issue is whether Skoczylas “is an officer or m em ber of the board of directors.” Winter, 196 F.3d at 345 (em phasis added). Because it is undisputed that Skoczylas was a director of LIHAC, this factor weighs in favor of finding that Skoczylas is a “responsible person” under § 6672(a). ii. Ow n s Sh a re s o r Po s s e s s e s an En tre p re n e u rial Stake in th e Co m p an y The parties agree that Skoczylas was the 10 0 % controlling shareholder at all tim es relevant to this case. Pl.’s 56.1 Opp’n ¶¶ 9-10 . Although Skoczylas argues that she “was never a bona fide owner” and m erely held the “cerem onial title[] of shareholder,” Pl.’s Mem . at 14, she “concede[s] that she held legal title to the shares of LIHAC during the periods at issue.” Pl.’s Reply at 4. Because it is undisputed that Skoczylas was the sole shareholder of LIHAC, this factor weighs in favor of finding that Skoczylas is a “responsible person” under § 6672(a). iii. Active ly Man age s D ay-to -D ay Op e ratio n s The parties agree that “Skoczylas does not appear to have been active in the m anagem ent of the day-to-day affairs of LIHAC.” Gov’t’s Opp’n at 6. Although the governm ent notes that Skoczylas was “kept apprised of [the] financial health of the 14 hospital,” this is a far cry from active day-to-day m anagem ent. Therefore, this factor weighs against finding that Skoczylas is a “responsible person” under § 6672(a). iv. H as th e Ability to H ire an d Fire Em p lo ye e s The parties dispute whether Skoczylas, as a director, had the ability to hire an d fire em ployees. The governm ent argues that Skoczylas had this power because she participated in Board m eetings that granted physicians hospital privileges and approved the hiring and firing of various executives. Gov’t’s Opp’n at 7-8. Skoczylas responds that the Board did not have real power to hire and fire because LIHAC was actually run by the Parties in Interest during the bankruptcy, not the Board. Pl.’s Reply at 5-6. Skoczylas also asserts that “granting privileges to physicians at a hospital is not hiring or firing em ployees.” Id. at 5. Skoczylas is correct that granting a physician hospital privileges does not constitute an em ploym ent contract. Lobel v. Maim onides Med. Ctr., 8 35 N.Y.S.2d 28, 29 (1st Dep’t 20 0 7) (citing Engelstad v. Virginia Mun. Hosp., 718 F.2d 262 (8th Cir. 1983)). 6 The parties also dispute whether the Board or the Parties in Interest ran LIHAC during the bankruptcy, so there are genuine disputes as to m aterial facts regarding this factor. v. D e cid e s W h ich , W h e n , an d in W h a t Ord e r D e bts an d Ta xe s W ill Be Paid The parties agree that Skoczylas lacked the power to decide which, when, and in what order debts and taxes will be paid. However, the governm ent contends that because Skoczylas m aintained signature power over LIHAC’s corporate checking accounts, she “possessed final veto power” over paying payroll, debts, and taxes. Gov’t’s Opp’n at 8 . That contention is unpersuasive given the Second Circuit’s cautionary 6 Although Skoczylas does not cite to any authority, LIHAC is governed by New York contract and em ploym ent law because it is a New York hospital. 15 language that “section 6672(a) is not m eant to ensnare those who have m ere ‘technical authority.’” Winter, 196 F.3d at 345. Therefore, this factor weighs against finding that Skoczylas is a “responsible person” under § 6672(a). vi. Exe rcis e s Co n tro l o ve r D aily Ban k Acco u n ts an d D is bu rs e m e n t Re co rd s The parties dispute whether Skoczylas exercised control over daily bank accounts. The governm ent contends, an d Skoczylas does not appear to dispute, that “Skoczylas m aintain ed check-signing authority on all of LIHAC’s corporate checking accounts,” “her sign ature was printed on all issued payroll checks,” and she “exercised her signatory authority from tim e-to-tim e on LIHAC’s operating account.” Gov’t’s Opp’n at 8 . However, Skoczylas argues that she “did n ot have possession or control of LIHAC’s checkbook”; she “sim ply perform ed the m in isterial act of signing the checks in an em ergen cy.” Pl.’s Reply at 9. The Second Circuit has held that “section 6672(a) was not intended to apply to an individual who lacks actual control over an em ployer’s finances, even though he or she has technical authority by virtue of title or ownership interest.” Winter, 196 F.3d at 346 (citation om itted). Therefore, this factor depends on whether Skoczylas possessed actual control over LIHAC’s checkbook and bank accounts, which is a disputed m aterial fact. vii. H as Ch e ck-Sign in g Au th o rity This factor turns on the sam e disputed m aterial facts discussed above. Skoczylas relies heavily on Sim pson v. United States, 664 F. Supp. 43 (E.D.N.Y. 198 7) (Glasser, J .), to argue that she should be granted sum m ary judgm ent because the seven factors weigh against finding that she is a “responsible person.” In Sim pson, this court held that the m em bers of the Board of Trustees of a hospital were not “responsible 16 persons” under § 6672(a), denied the governm ent’s m otion for summ ary judgm ent, and granted the Trustees’ m otion. Id. at 48-50 . Skoczylas an alogizes her case to Sim pson and em phasizes that, like here, the Trustees in Sim pson were unpaid and did not take the leading role in running the hospital. Pl.’s Mem . at 6. While the Court recognizes the “social value in having individuals agree to serve on the boards of hospitals,” it also cautions that “unpaid service on the board of a not-for-profit institution should not confer autom atic im m unity from the strictures of section 6672.” Sim pson, 664 F. Supp. at 49. In Sim pson, the Court found that the Trustees “did not sign checks” and “did not hire an d fire em ployees,” whereas here the Court finds genuine disputes as to m aterial facts for both factors. Id. Therefore, Sim pson, is distinguishable. A m ore apt an alogue is Winter v. United States. In Winter, the governm ent introduced evidence that Rita Rom er was an officer, director, and shareholder who possessed check-signin g authority and was in volved in im portant operations decisions. 196 F.3d at 346. In response, Rom er introduced evidence that “she held her ownership interest and her titles m erely as a conven ience to her husband, who exercised effective control over her interest in the com pany,” while “she had no decision-m aking authority.” Id. Faced with this conflicting evidence, the court concluded that “there exists a genuine issue of fact as to whether she exercised ‘significant control’ over [the com pany’s] finances or m erely enjoyed a ‘titular designation’ at the com pany,” so sum m ary judgm ent was not appropriate. Id. Here, the governm ent has introduced eviden ce that Skoczylas was a director and sole shareholder of LIHAC who m ay have possessed hiring, firing, and check-signing authority. Conversely, Skoczylas has introduced eviden ce that she possessed little, if any, control over m anagem ent, 17 operations, or finances. As in Winter, this raises genuin e issues of m aterial fact that cannot be resolved at the sum m ary judgm ent stage in favor of either party. Under the totality of the circum stances, the seven-factor test does not warrant granting sum m ary judgm ent to either Skoczylas or the governm ent. Accordingly, on the issue of whether Skoczylas is a “responsible person” under § 6672(a), both Skoczylas’ and the governm ent’s m otions are DENIED. 2 . W illfu ln e s s “The principal com ponent of willfulness is knowledge,” United States v. Rem , 38 F.3d 634, 643 (2d Cir. 1994), and, as discussed supra, the parties dispute Skoczylas’ knowledge and involvem ent throughout the relevant period. Although Skoczylas bears the burden of proof, she presents sufficient eviden ce of being unaware of LIHAC’s failure to pay withholding taxes. For exam ple, Hung testified: Q: So as far as you know, Ms. Skoczylas had no idea of the delinquency? A: Correct. I didn’t say anything to her. Reiser Decl., Ex. 7 (Hung Dep.), at 197. Conversely, the governm ent presents eviden ce that Skoczylas had access to, and at tim es even signed, docum ents that showed LIHAC’s tax delinquen cies. Gov’t’s Mem . at 23-24. In light of these genuine disputes as to m aterial facts, the issue of Skoczylas’ willfulness cannot be resolved at the sum m ary judgm ent stage. Accordingly, both Skoczylas’ and the governm ent’s m otions are DENIED. 7 7 The governm ent also contends that, in the alternative, Skoczylas should be held strictly liable. Gov’t’s Mem . at 26-27. The governm ent appears to base its argum ent on the allegation that LIHAC possessed unencum bered funds and chose not to use them to pay taxes, Gov’t’s 56.1 ¶ 45, but offers no evidence to support the fact that the funds were unencum bered. Breen’s 56.1 Opp’n ¶ 45. The governm ent’s theory of strict liability is contradicted by the text of the statute, which only applies to an individual who 18 B. J o h n Bre e n Breen concedes that he is a “responsible person” under § 6672(a) for m ost of the relevant tim e period, but argues that he is entitled to sum m ary judgm ent because “there is no evidence that he acted willfully in causing any LIHAC payroll tax deficiency.” Breen’s Opp’n at 77. The governm ent conten ds that it is entitled to sum m ary judgm ent because “Breen willfully failed to collect, truthfully account for or pay over LIHAC’s withheld em ploym ent taxes to the IRS.” Gov’t’s Mem . at 24-26. The Court finds that Breen is a “responsible person” under § 6672(a) for m ost, but not all, of the relevant tim e period, but finds that there are genuine disputes as to m aterial facts regarding Breen’s willfulness. Accordingly, it grants Breen’s m otion in part an d den ies Breen’s m otion in part, and grant’s the governm ent’s m otion in part and den ies the governm ent’s m otion in part. 1. “Re s p o n s ible Pe rs o n ” Breen’s status as a “responsible person” turns on the precise tim elin e of events. As discussed supra, it is undisputed that LIHAC did not fully pay federal payroll taxes for the first three quarters of 20 0 2 and the first two quarters of 20 03. It is also undisputed that Breen was COO during the first quarter of 20 0 2, was prom oted to CEO during the second quarter of 20 0 2, and was CEO for all subsequent quarters in 20 0 2 and 20 0 3. “willfully fails to collect such tax . . . or willfully attem pts in any m anner to evade or defeat such tax.” 26 U.S.C. § 6672(a) (em phasis added). Moreover, the Suprem e Court has explicitly held that “the statute cannot be construed to im pose liability without fault” because it “does not im pose an absolute duty.” Slodov v. United States, 436 U.S. 238, 254 (1978 ). The governm ent’s attem pts to distinguish Slodov are unavailing, Gov’t’s Reply to Pl. at 10 -12, because the weight of authority holds that “[a]ttaining the status of a ‘responsible person’ does not . . . encom pass strict liability for a com pany’s tax delinquency.” Michaud v. United States, 40 Fed. Cl. 1, 23 (Fed. Cl. 1997). 19 The parties appear to agree that Breen was not a “responsible person” in the first quarter of 20 0 2 when he was COO, and was a “responsible person” in the third quarter of 20 0 2 and first two quarters of 20 0 3 when he was CEO. Breen’s Opp’n at 34-36; Gov’t’s Reply to Breen at 2, 5-6. But, they dispute whether Breen was a “responsible person” in the second quarter of 20 0 2. Breen argues that he was n ot a “responsible person” in the second quarter of 20 0 2 because he was still COO for m ost of the quarter. Breen’s Opp’n at 34-36. The governm ent responds that Breen becam e CEO with 30 days left in the second quarter of 20 0 2, so “there was sufficient tim e rem aining . . . for Breen to determ ine the status of LIHAC’s unpaid federal em ploym en t tax liability accruing during the second quarter”; therefore, Breen was a “responsible person” in the second quarter of 20 0 2. Gov’t’s Reply to Breen at 2, 5-6. Since Breen was prom oted to CEO partway through the second quarter of 20 0 2, the Court finds that the extent of Breen’s responsibility in the second quarter of 20 0 2 raises genuine disputes as to m aterial facts. Accordingly, on the issue of whether Breen is a “responsible person,” Breen’s m otion is GRANTED for the first quarter of 20 0 2, and DENIED for all subsequent quarters, and the governm ent’s m otion is GRANTED for the third quarter of 20 0 2 an d all subsequent quarters, and DENIED for all previous quarters. 2 . W illfu ln e s s Sum m ary judgm ent is not appropriate on the issue of willfulness because the issue is a m atter of credibility, which is a determ ination m ade at trial. As discussed supra, Breen testified that he was unaware of the tax liabilities until Septem ber 20 0 3, while Hung testified that he inform ed Breen in 20 0 2. Sim ilarly, the governm ent argues that Breen was aware of the tax liabilities in Septem ber 20 0 2 based on the m inutes of a m eeting of the Parties in Interest, while Breen contends that he was discussing state 20 em ploym ent taxes. Gov’t’s Reply to Breen at 10 -11. Finally, Breen contends that he did not read the tax inform ation appen ded to the MORs he signed and, even if he had read it, he would not have understood it. The governm ent responds that even if Breen could not understand the tax inform ation appended to the MORs, he showed a reckless disregard for the “known risk that LIHAC’s em ploym ent tax liabilities would not be paid over to the United States” because “he utterly failed to conduct any investigation to assure him self that em ploym ent taxes were being paid over to the IRS.” Id. Such factual disputes cannot be adjudicated at the sum m ary judgm ent stage, so both Breen’s and the governm ent’s m otions are DENIED. 8 IV. CON CLU SION For the foregoing reasons, Skoczylas’ m otion is DENIED, the governm ent’s m otion against Skoczylas is DENIED, Breen’s m otion is GRANTED in part and DENIED in part, an d the governm ent’s m otion against Breen is GRANTED in part and DENIED in part. SO ORDERED. Dated: Brooklyn, New York Decem ber 3, 20 12 / s/ ILG I. Leo Glasser Senior United States District J udge 8 As with Skoczylas, the governm ent also contends that, in the alternative, Breen should be held strictly liable. Gov’t’s Mem . at 26-27. The Court rejects the governm ent’s argum ent for the sam e reasons. 21

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