Sananikone v. United States of America, No. 2:2007cv01434 - Document 114 (E.D. Cal. 2010)

Court Description: ORDER denying 85 Motions for Summary Judgment, signed by Judge Morrison C. England, Jr., on 11/30/10. (Kastilahn, A) Modified on 12/1/2010 (Kastilahn, A).
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Sananikone v. United States of America Doc. 114 1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA 10 11 PUONGPUN SANANIKONE, 12 Plaintiff, 13 14 No. 2:07-cv-01434-MCE-EFB v. MEMORANDUM AND ORDER UNITED STATES OF AMERICA, 15 Defendant. 16 AND RELATED COUNTERCLAIMS 17 18 ----oo0oo---- 19 20 Plaintiff Puongpun Sananikone (“Sananikone”), a former 21 official of American Steel Frame, Inc. (“ASFI”) has sued the 22 government for (1) a refund of taxes that were assessed against 23 and collected from him; and (2) the abatement of the Trust Fund 24 Recovery Penalty under 26 U.S.C. § 6672 (“TFRP”) that was imposed 25 upon him. 26 /// 27 /// 28 /// (ECF No. 1.) 1 1 In its Answer (ECF No. 9), Defendant/Counterclaimant United 2 States (“United States” or “government”) counterclaimed against 3 Counterclaim Defendant Jacob Intveld (“Intveld”), another ASFI 4 executive, to reduce to judgment an outstanding tax assessment 5 made against him pursuant to the TFRP for ASFI’s withholding 6 income and social security taxes (“trust fund taxes”). 7 answered the United States’ Counterclaim and counterclaimed for a 8 refund of an overpayment of employment taxes and the abatement of 9 the TFRP for the taxable periods ending June 30, 2000, September 10 30, 2000, December 31, 2000, and June 30, 2001. Intveld (ECF No. 21.) 11 Presently before the Court is a Motion for Summary Judgment 12 brought by the United States against Intveld pursuant to Federal 13 Rule of Civil Procedure Rule 56.1 14 set forth below, the United States’ Motion will be denied.2 (ECF No. 85.) For the reasons 15 BACKGROUND3 16 17 18 ASFI was a commercial and residential light-gauge steel- 19 truss manufacturing and installation company based in Stockton, 20 California. 21 /// 22 23 1 24 25 26 27 28 Unless otherwise noted, all future references to Rule or Rules are to the Federal Rules of Civil Procedure. 2 Because oral argument will not be of material assistance, the Court orders this matter submitted on the briefs. E.D. Cal. Local Rule 230(g). 3 The factual assertions in this section are found in the non-moving party’s Mem. P. & A. Opp’n Mot. Summ. J. (ECF No. 87) unless otherwise specified. 2 1 In February, 2000, ASFI hired Intveld as its Vice President of 2 Manufacturing and Operations (“Operations VP”). 3 and responsibilities were solely in the production area, relating 4 to the operations of the manufacturing processes. 5 hire or fire any employees. 6 Executive Vice President and Chief Executive Officer of ASFI. 7 Intveld’s duties He did not He reported to Paul Ta (“Ta”), On February 17, 2000, the ASFI Board of Directors (“Board”) 8 authorized Intveld as a signatory on ASFI’s checking account. 9 Intveld did not learn of this authorization, nor act upon it, 10 until June, 2000, when Ta asked him to sign some checks. 11 during February of 2000, the Board gave Intveld specific 12 authority to negotiate a sale of ASFI’s stock to Dietrich 13 Industries. 14 negotiations. 15 terminated after sixty days. 16 Also No sale, however, transpired from those Intveld’s specific authority in that regard On May 31, 2000, Inveld became President of ASFI, with the 17 understanding that he would be President in name only and his 18 duties at ASFI would not change.4 19 President, Intveld reported to both Ta and [Board Chairman] 20 Sananikone. 21 signatures on all business checks written, Intveld, as an 22 authorized signatory, often signed checks presented to him. 23 /// 24 /// Following his appointment as Because ASFI’s anti-fraud policy required two 25 26 27 28 4 After several attempts by Sananikone to persuade Intveld to accept the position of President, Intveld agreed on the condition that he would be named President “only for marketing and client relationship reasons,” so ASFI could capitalize on Intveld’s prior industry-wide relationships. 3 1 However, in all instances Intveld claims he neither prepared the 2 checks nor exercised any authority over which checks were later 3 released for payment. 4 happened to the checks after he signed them. 5 Intveld was appointed as a member of ASFI’s Board. 6 four board meetings while employed by ASFI and gave a 7 “President’s Report” at each of them. Intveld did not have any knowledge of what In November, 2000, He attended 8 In January, 2001, ASFI’s bookkeeper, Charlene Amarante 9 (“Amarante”) informed Intveld for the first time that payroll tax 10 returns had not been filed for the second, third, and fourth 11 quarters of 2000 and asked him to sign them. 12 Amarante that “preparing and signing payroll tax returns were 13 outside his authority” and immediately contacted Sananikone to 14 apprise him of the delinquent returns. 15 Summ. J. 7. 16 and take care of it.” 17 Intveld told Mem. P. & A. Opp’n Mot. Sananikone told Intveld that he would “speak to Ta Id. According to Intveld, Ta occasionally showed him a list of 18 suppliers and asked that he identify those suppliers that had to 19 be paid in order to avoid halting production. 20 which suppliers met that criteria and gave the list back to Ta. 21 Intveld never made any decisions about which creditors to pay. 22 The list did not include any creditors other than production 23 suppliers. 24 card to cover payroll when Amarante informed him that Ta failed 25 to deposit funds needed to cover payroll checks. 26 /// 27 /// 28 /// Intveld indicated In February, 2001, Intveld used his personal credit 4 1 During the second quarter of 2001, Ta and Amarante attempted 2 to negotiate a settlement of past due trust fund taxes by meeting 3 with J.K. Harris. 4 fund taxes for the next two quarters as they became due and J.K. 5 Harris would attempt to negotiate a settlement with the Internal 6 Revenue Service (“IRS”) for the remaining delinquent periods. 7 Intveld never met with anyone regarding the delinquent trust fund 8 taxes or negotiated with anyone to settle the debt. 9 refused to pay the taxes for the first quarter of 2001, Amarante They were told that ASFI had to pay the trust When Ta 10 informed Intveld. 11 director of ASFI, met with Intveld and Ta and instructed Ta to 12 sign the tax return and accompanying check for payment. 13 witnessed Ta’s signature on both. 14 Dr. Nguyen Vo (“Vo”), a shareholder and Intveld On July 10, 2001, prior to a Board meeting, Intveld 15 attempted to resign from ASFI because he anticipated that Ta 16 would again refuse to pay the delinquent second quarter’s trust 17 fund taxes. 18 “Sananikone and Vo assured Intveld that they would take care of 19 [T]a and the payroll tax issue.” 20 J. 8. 21 ongoing delinquent taxes as the reason. 22 continue working at ASFI until a new president was transitioned. 23 He agreed to do so. 24 /// 25 /// 26 /// 27 /// 28 /// During the meeting, Ta indeed refused to pay them. Mem. P. & A. Opp’n Mot. Summ. Intveld resigned in August, 2001, citing the company’s Intveld was asked to Intveld left ASFI in September of 2001. 5 1 STANDARD 2 3 The Federal Rules of Civil Procedure provide for summary 4 judgment when “the pleadings, depositions, answers to 5 interrogatories, and admissions on file, together with 6 affidavits, if any, show that there is no genuine issue as to any 7 material fact and that the moving party is entitled to a judgment 8 as a matter of law.” 9 principal purposes of Rule 56 is to dispose of factually Fed. R. Civ. P. 56(c). 10 unsupported claims or defenses. 11 One of the 477 U.S. 317, 325 (1986). 12 Celotex Corp. v. Catrett, Rule 56 also allows a court to grant summary adjudication on 13 part of a claim or defense. 14 seeking to recover upon a claim...may...move...for a summary 15 judgment in the party’s favor upon all or any part thereof.”); 16 see also Allstate Ins. Co. v. Madan, 889 F. Supp. 374, 378-79 17 (C.D. Cal. 1995); France Stone Co., Inc. v. Charter Township of 18 Monroe, 790 F. Supp. 707, 710 (E.D. Mich. 1992). 19 See Fed. R. Civ. P. 56(a) (“A party In considering a motion for summary judgment, the court must 20 examine all the evidence in the light most favorable to the non- 21 moving party. 22 Once the moving party meets the requirements of Rule 56 by 23 showing that there is an absence of evidence to support the non- 24 moving party’s case, the burden shifts to the party resisting the 25 motion, who “must set forth specific facts showing that there is 26 a genuine issue for trial.” 27 477 U.S. 242, 256 (1986). 28 /// U.S. v. Diebold, Inc., 369 U.S. 654, 655 (1962). Anderson v. Liberty Lobby, Inc., 6 1 Genuine factual issues must exist that “can be resolved only by a 2 finder of fact, because they may reasonably be resolved in favor 3 of either party.” 4 summary judgment stage, the court does not make credibility 5 determinations or weigh conflicting evidence. 6 Pac. Elec. Contractors Ass’n, 809 F.2d 626, 630-631 (9th Cir. 7 1987), citing Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio 8 Corp., 475 U.S. 574, 587 (1986). Id. at 250. In judging evidence at the See T.W. Elec. v. 9 ANALYSIS 10 11 12 On February 25, 2004, the United States, through its agent, 13 the Secretary of the Treasury, made an assessment against Intveld 14 pursuant to the TFRP for the tax periods ended June 30, 2000, 15 September 30, 2000, December 31, 2000, and June 30, 2001. 16 assessment was made due to Intveld’s “willful failure to collect, 17 truthfully account for, and pay over the withheld Trust Fund 18 taxes of [ASFI].” 19 Written Appeal and Protest. 20 Refund and Request for Abatement for the abovementioned periods 21 on January 10, 2008. 22 liable for the tax assessment because as President of ASFI from 23 May 2000 until at least August 2001, he bore the responsibility 24 to ensure the corporation paid its required trust fund taxes. 25 Intveld asserts twelve affirmative defenses in his Answer. 26 No. 21.) 27 during the abovementioned periods, but denies being responsible 28 for the corporation’s unpaid trust fund taxes. The On April 14, 2004, Intveld filed a Formal He filed an IRS Form 843 Claim for The government alleges that Intveld is (ECF Intveld acknowledges that he was an officer of ASFI 7 1 In his Answer, Intveld counterclaims against the United States 2 for (1) the refund of taxes collected from him and (2) the 3 abatement of the TFRP imposed upon him under 26 U.S.C. § 6672. 4 5 A. Responsible Person Under 26 U.S.C. § 6672 6 7 Employers are required to withhold federal income and social 8 security taxes from employees’ wages for each pay period and 9 remit those withheld taxes to the IRS. See 26 U.S.C. §§ 3102(a), 10 3402(a); see also Davis v. United States, 961 F.2d 867, 869 11 (9th Cir. 1992). 12 for the government between the time the taxes are withheld from 13 the employees and the time the employer remits them to the IRS. 14 26 U.S.C. § 7501. 15 other business expenses. 16 7501(a). 17 remits the withheld taxes to the IRS, employees are credited with 18 the amounts for income tax and social security purposes. 19 Slodov v. United States, 436 U.S. 238, 243 (1978); Davis, 20 961 F.2d at 869. 21 amounts not paid by the employer but credited to the employee, 22 26 U.S.C. § 6672 provides that: Employers may not use withheld funds to pay See 26 U.S.C. §§ 3102(b), 3403, Regardless of whether or not the employer actually See To prevent the government’s loss of withheld Any person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such tax, or truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or payment thereof, shall, in addition to other penalties provided by law, be liable for a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over. 23 24 25 26 27 28 Employers hold the withheld amounts in trust /// 8 1 26 U.S.C. § 6672(a). 2 under this section need not be a person who performs all three 3 functions (collecting, accounting for, and paying over), but 4 rather need only be a person responsible for the collection of 5 third-party taxes. 6 It is well-settled law that a person liable Slodov, 436 U.S. at 250. There is a two-step inquiry when determining liability under 7 Section 6672. First, a court must determine whether the assessed 8 person meets the “responsible person” test. 9 a court must then determine whether the responsible person If that test is met, 10 “willfully fail[ed] to collect,...account for, and pay over the 11 tax[es].” § 6672(a). 12 proof when it brings suit to collect taxes. 13 States, 116 F.3d 1309, 1312 (9th Cir. 1997). 14 presumption of correctness applied to tax assessments, so long as 15 such assessments are supported by a “minimal fact foundation.” 16 Id. 17 through its production of IRS Form 4340, Certificates of 18 Assessments and Payments. 19 1297, 1298 (9th Cir. 1993); Hughes v. United States, 953 F.2d 20 531, 535 (9th Cir. 1992). 21 shifts to Intveld to prove that either (1) he is not a 22 responsible person under the statute; or (2) he did not willfully 23 fail to collect, account for, or pay over the trust fund taxes. 24 /// 25 /// 26 /// 27 /// 28 /// The government bears the initial burden of Palmer v. United However, there is a Here, the United States has established its prima facie case See Koff v. United States, 3 F.3d The burden of persuasion accordingly 9 1 To prove Intveld was a responsible person under the statute, 2 the government relies on Purcell v. United States, 1 F.3d 932 3 (9th Cir. 1993). 4 the Ninth Circuit held that if a person “had the authority 5 required to exercise significant control over the corporation’s 6 financial affairs, regardless of whether he exercised such 7 control in fact,” then that person was “responsible” under the 8 statute. 9 cases establishing the factors courts use when determining 10 There, the United States Court of Appeals for Id. at 937. The government also cites a long line of whether a particular person had “significant control,” including: 11 1. 12 13 2. 3. 4. 14 5. 15 6. 7. 16 8. 17 9. 18 The ability to sign checks on behalf of the corporation or to prevent a check’s issuance; The authority to control distributions of payroll; The authority to control payroll accounts; The authority and control to pay the payroll taxes; The authority to sign and prepare corporate tax returns; The authority to hire and fire employees; The authority to control the financial affairs of the corporation; An individual’s status as an officer, shareholder, or director of the corporation; and An individual’s entrepreneurial stake in the corporation. 19 See Mem. of P. & A. Supp. Mot. Summ. J. 21 (internal citations 20 omitted). 21 The government offers numerous facts to prove Intveld 22 exercised significant control over ASFI for the tax periods in 23 question. 24 judgment, the court must credit all inferences supported by [the 25 non-moving party’s] evidence. 26 485 F.3d 463, 470 (9th Cir. 2007), (quoting Anderson v. Liberty 27 Lobby, Inc., 477 U.S. at 255). 28 /// However, in assessing the propriety of summary Blackhorn v. City of Orange, 10 1 There is no dispute that from May 31, 2000 until August 2001, 2 Intveld held the title of President of ASFI. 3 undisputed that the Board gave Intveld check-signing authority on 4 February 17, 2000. 5 in dispute, Intveld argues that this does not prove significant 6 control because he did not even learn of his authority to sign 7 checks until June 2000. 8 signed were returned to Ta, who decided which ones to release for 9 payment. It is also While the Board’s action and the date are not More importantly, all checks Intveld Intveld argues that while he physically signed the 10 checks to fulfill ASFI’s anti-fraud policy requiring two 11 signatures on every check, he did not have the authority to 12 determine which checks would actually be released for payment. 13 Although the government claims that Intveld had the 14 authority to hire and fire employees and supervised approximately 15 twenty-five manufacturing employees, Intveld denies hiring or 16 firing anyone at ASFI. 17 Intveld possessed the authority to control the financial affairs 18 of ASFI because he held the title of President and performed 19 duties relating to that title, such as giving “President’s 20 Reports” to the Board during quarterly meetings. 21 cites a document titled “Job Duties of President of ASFI,” in 22 which the following duties are listed: “[e]valuate techniques and 23 strategies to minimize the company’s tax liabilities,...[r]eview 24 monthly financial statements for all department activities,...and 25 [c]oordinate and review an overall compensation plan.” 26 challenges the document’s authenticity and claims it lacks 27 evidentiary foundation and therefore should not be considered by 28 the Court. The government nonetheless argues that 11 The government Intveld 1 He claims he held the title of President only for marketing, 2 client relationship and industry name recognition purposes, and 3 contends his role as President conferred no greater authority 4 beyond what he possessed previously as Operations VP of ASFI. 5 The United States, on the other hand, maintains that Intveld 6 regularly met with Schuler Homes, ASFI’s largest customer, 7 proving he exercised significant authority over ASFI. 8 explains that before being appointed President he was asked to 9 meet with Schuler Homes because he had a positive relationship Intveld 10 with Schuler from past business dealings with them. 11 government also points to Intveld’s involvement with ASFI’s 12 financing when Intveld signed a promissory note with a creditor 13 for $15,000 and later wrote that same creditor asking for an 14 extension of the note’s terms. 15 he was not involved in ASFI’s financing in any way. 16 document he signed regarding financing was an extension of an 17 instrument previously negotiated by others at ASFI. 18 to sign the documents, and he did as he was told. 19 and as a fundamental matter, the United States claims that the 20 office of President of ASFI had inherent financial control, as 21 stated in the document titled “Job Duties of President of ASFI.” 22 See supra. 23 he went from being Operations VP to President. 24 The Intveld claims, in response, that The only Ta told him Additionally, Intveld claims his duties at ASFI did not change when As further evidence of Intveld’s inherent financial control, 25 the government contends that Amarante regularly prepared a list 26 of ASFI’s suppliers for Intveld, who would select which creditors 27 would be paid. 28 sign checks “For Disbursement Approval.” For a period of time, Intveld and Amarante would 12 1 Intveld disputes this and says he was asked by Ta to indicate the 2 suppliers on a list whose product was necessary to avoid a halt 3 in the plant’s production. 4 the signed checks. 5 Approval” on the checks, and she did so at Ta’s direction. 6 The list was returned to Ta, as were Only Amarante wrote “For Disbursement Finally, the United States argues that while Intveld may not 7 have obtained possession of stock in ASFI, he was promised stock 8 as part of an anticipated sale of ASFI to another company. 9 response, Intveld simply points to the undisputed fact that he 10 was never an investor in ASFI and never owned stock in the 11 In corporation. 12 Taking the evidence in the light most favorable to Intveld, 13 the trier of fact may conclude that he was not a “responsible 14 person” who exercised “significant control” over the corporation 15 under Section 6672. 16 outlined above illuminate, any number of disputed facts on the 17 issue of Intveld’s true authority prevent the government’s motion 18 from being granted. As the starkly contrasting arguments 19 20 B. Willful Failure to Truthfully Collect, Account for, or Pay Over Trust Fund Taxes Under 26 U.S.C. § 6672 21 22 The Ninth Circuit has “construed the term ‘willfulness’ for 23 purposes of failing to pay over withholding taxes as a 24 ‘voluntary, conscious and intentional act to prefer other 25 creditors over the United States.’” Phillips v. United States, 26 73 F.3d 939, 942 (9th Cir. 1996) (quoting Klotz v. United States, 27 602 F.2d 920, 923 (9th Cir. 1979); Davis v. United States, 28 961 F.2d 867, 871 (9th Cir. 1992)). 13 1 It distinguishes “reckless disregard” from actual knowledge of 2 whether the trust fund taxes are being paid, saying reckless 3 disregard may sufficiently establish willfulness. 4 Sorenson v. United States, 521 F.2d 325, 329 (9th Cir. 1975); 5 Teel v. United States, 529 F.2d 903, 905 (9th Cir. 1976). 6 Recklessness will be found if a responsible person “fails to 7 investigate or correct mismanagement after being notified of a 8 default in the payment of withholding tax.” 9 943. 10 Id. (citing Phillips, 73 F.3d at However, the government must prove more than mere negligence. Klotz v. United States, 602 F.2d at 924. The government contends that “Intveld knew that ASFI owed 11 12 federal payroll taxes at least as early as January 2001.” Mem. 13 P. & A. Supp. Mot. Summ. J. 25. 14 taxes owed before that date, it relies on Davis, 961 F.2d at 876, 15 which held that a responsible person’s willful actions can make 16 him responsible for taxes that accrued earlier than when he 17 became aware of the delinquency. 18 use of after-acquired funds to pay a corporate taxpayer's 19 commercial debts by the same persons who were responsible for the 20 corporation’s failure to collect and pay withholding taxes in the 21 first instance, as opposed to new management, gives rise to 22 liability for the “responsible person” penalty of Section 6672. 23 Here, Intveld neither decided the application of after-acquired 24 receipts towards existing commercial debts, nor directed which 25 creditors were to be paid. 26 /// 27 /// 28 /// In order to allege liability for In Davis, the court held that Therefore, Davis is not analogous. 14 1 The United States also argues that Intveld’s failure to 2 investigate and correct ASFI’s failure to pay its payroll taxes 3 and failure to use funds received by ASFI during 2001 to pay the 4 delinquent trust fund taxes constitutes reckless disregard. 5 reckless disregard, in turn, establishes willfulness under the 6 statute with respect to all of the tax periods in dispute. 7 Phillips, 73 F.3d at 942; see also Greenberg v. United States, 8 46 F.3d 239, 244. 9 on the facts from both Phillips and Greenberg. That See This case, however, is clearly distinguishable In both those 10 cases, the person in question had unrestricted access to 11 corporate funds with which to pay the delinquent taxes. 12 persons were either aware or should have been aware of the trust 13 fund tax delinquency, based upon their respective roles and 14 direct authority in their respective organizations. 15 the other hand, is not in the same situation. 16 controlled the bank account funds (either incoming or outgoing), 17 nor directed who should be paid and when. 18 credit all inferences supported by the non-moving party’s 19 evidence when deciding a motion for summary judgment, see supra, 20 it finds that the government has not established the requisite 21 reckless disregard in failing Intveld’s alleged failure to pay 22 the delinquent trust fund taxes. 23 /// 24 /// 25 /// 26 /// 27 /// 28 /// 15 Both Intveld, on He neither Since the Court must 1 Since the Court finds a genuine dispute both as to whether 2 Intveld is a “responsible person” and whether he “willfully 3 failed” to pay ASFI’s trust fund taxes, summary judgment will not 4 be granted.5 5 6 CONCLUSION 7 8 9 Based on the foregoing, the Defendant/Counterclaimant United States is not entitled to summary judgment as to its 10 counterclaim. 11 accordingly DENIED. 12 13 The United States’ Motion for Summary Judgment is IT IS SO ORDERED. Dated: November 30, 2010 14 15 _____________________________ MORRISON C. ENGLAND, JR. UNITED STATES DISTRICT JUDGE 16 17 18 19 20 21 22 23 24 25 26 5 27 28 Because the Court has determined the United States’ motion fails given the “responsible person” and “willful failure” bases alone, it need not address Intveld’s remaining arguments against summary judgment and declines to do so. 16