Hudak et al v. The United States of America Internal Revenue Service
Filing
192
MEMORANDUM AND ORDER denying 101 The United States' Motion for Summary Judgment Against Dwight C. Mules. Signed by Judge Marvin J. Garbis on 12/17/2015. (bmhs, Deputy Clerk)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
TIMOTHY J. HUDAK, et ux.
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Plaintiffs
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vs.
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THE UNITED STATES OF AMERICA
CIVIL ACTION NO. MJG-11-1271
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Defendant/Third-Party Plaintiff
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vs.
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DWIGHT C. MULES
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Third-Party Defendant
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MEMORANDUM AND ORDER RE: SUMMARY JUDGMENT
The Court has before it the United States’ Motion for
Summary Judgment Against Dwight C. Mules [ECF No. 101] and the
materials submitted relating thereto.
The Court has held a
hearing and had the benefit of the arguments of counsel.
I.
BACKGROUND
At all times relevant hereto, (1) Defendant Timothy Hudak
("Hudak") was the owner and president of related companies,
referred to as "the Hudak Companies" and (2) Third-Party
Defendant Dwight C. Mules ("Mules") was the Chief Financial
Officer.
The Hudak Companies failed to comply with their withholding
and employment tax obligations for the quarterly tax periods
ending on the following dates: 12/31/07, 9/30/08, 12/31/08,
3/31/09, 6/30/09, 9/30/09, 12/31/09, 3/31/10, and 12/31/10.
In
due course, the Internal Revenue Service made assessments
pursuant to § 6672 of the Internal Revenue Code1 against Hudak
and Mules.
Hudak brought the instant tax refund suit in which the
Government counterclaimed for the unpaid balance of the
assessment and asserted a Third-Party Complaint against Mules.
As to Hudak, the Government prevailed at trial before a jury
with regard to the quarters in 2007, 08 and 09 and in a bench
trial as to the quarters in 2010. See Bench Trial Decision Re:
1Q10 & 4Q10 [ECF No. 161].
Hudak's appeal is, at this writing,
pending before the United States Court of Appeals for the Fourth
Circuit.
By the instant motion, the Government seeks summary
judgment against Mules with regard to all of the quarters at
issue.
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All Section references herein are to Title 26 of the United
States Code, the Internal Revenue Code.
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II.
SUMMARY JUDGMENT STANDARD
A motion for summary judgment shall be granted if the
pleadings and supporting documents show "there is no genuine
dispute as to any material fact and the movant is entitled to
judgment as a matter of law."
Fed. R. Civ. P. 56(a).
The well-established principles pertinent to summary
judgment motions can be distilled to a simple statement: The
court may look at the evidence presented in regard to a motion
for summary judgment through the non-movant's rose-colored
glasses, but must view it realistically.
After so doing, the
essential question is whether a reasonable fact finder could
return a verdict for the non-movant or whether the movant would,
at trial, be entitled to judgment as a matter of law.
See,
e.g., Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986); Shealy
v. Winston, 929 F.2d 1009, 1012 (4th Cir. 1991).
III. DISCUSSION
A.
Responsible Person Status2
Section 6672 provides, in pertinent part:
Any person required to collect, truthfully
account for, and pay over any tax imposed by
this title who willfully fails to collect
such tax, . . . shall, in addition to other
penalties provided by law, be liable to a
2
Because the Court concludes that there are genuine issues
of material fact regarding Mules' status as a responsible
person, it is not addressing willfulness issues herein.
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penalty equal to the total amount of the tax
evaded, or not collected, or not accounted
for and paid over.
26 U.S.C. § 6672(a).
The Fourth Circuit has developed a "non-exhaustive list of
factors to consider in determining whether 'the substance of the
circumstances' establishes responsible person status under §
6672."
Erwin v. United States, 591 F.3d 313, 320 (4th Cir.
2010).
Those factors include whether the person at issue:
(1) served as an officer or director of the
company;
(2) controlled the company's payroll;
(3) determined which creditors to pay and
when to pay them;
(4) participated in the corporation's dayto-day management;
(5) had the ability to hire and fire
employees; and
(6) possessed the power to write checks.
Id.
No one factor is determinative; the court is to assess the
totality of the circumstances.
Id.
Thus, for Mules to be liable pursuant to § 6672 he must, as
to each period for which liability is asserted, have been a
"responsible person" as well as "willfully" failed to collect
and pay over the taxes at issue.
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B.
Factual Contentions
There are at least three views of the facts presented by
Mules, Hudak, and the Government.
Mules, acknowledges, as he must, that he knew of the Hudak
companies' noncompliance with their withholding obligations and,
therefore, that creditors other than the I.R.S. were being paid
from available funds.
However, Mules asserts that he did not
have the ability to cause the Hudak companies to make the
required tax payments.
Rather, he asserts that he did not have
check signing authority and, by virtue of the steadfast orders
of Hudak, he could not cause those who had such authority to pay
the tax obligations.
Hence, Mules contends that while Hudak was
a responsible person, he was not.
Hudak contends that he was not a responsible person by
virtue of a "complete defense,"3
and that Mules was a
responsible person but he (Hudak) was not.
As to Mules, Hudak
asserts that:
He had reasonably delegated to Mules the
responsibility for compliance with employment tax
obligations;
3
This "complete defense" – that Mules adopts so as to preserve
the issue for appeal - is that the Government wrongfully delayed
progress payments causing the tax compliance failures. This
matter is before the United States Court of Appeals for the
Fourth Circuit on Hudak's appeal and will, presumably, be
included in any appeal from the Judgment regarding Mules'
liability.
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Mules, and not Hudak, made decisions regarding whether
to pay the Internal Revenue Service or other creditors
with available funds and Hudak merely signed checks
after the decision to pay (and in what amount) was
made by Mules;
Mules misled Hudak into believing that the Hudak
Companies were compliant with their employment tax
obligations; and
Hudak reasonably, not recklessly, relied upon Mules'
representations.
The Government contends that both Mules and Hudak were
responsible persons for all quarters at issue.
The Government
does not, of course, accept Hudak's version of the facts – that
would exonerate Hudak altogether.
However, the Government most
certainly disagrees with Mules version of the facts, contends
that Mules had effective authority and ability to cause the
payment of the tax liabilities at issue and decided – together
with Hudak – to prefer other creditors.
C.
Factual Issues
In the summary judgment context, Mules, as the non-moving
party, is entitled to have "the credibility of his evidence as
forecast assumed, his version of all that is in dispute
accepted, all internal conflicts in it resolved favorably to
him, the most favorable of possible alternative inferences from
it drawn in his behalf; and finally, to be given the benefit of
all favorable legal theories invoked by the evidence so
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considered."
Charbonnages de France v. Smith, 597 F.2d 406, 414
(4th Cir. 1979).
Therefore, despite the Government's denial of
Mules' assertions, for purposes of the instant discussion, the
Court must accept the version of the facts most favorable to
Mules.
Neither the parties nor the Court has found a decision
upholding a grant of summary judgment in a case in which a
putative responsible person (i) did not have the power to sign
checks, (ii) lacked authority to require employees to make
payments to the I.R.S. rather than other creditors, and (iii)
knew that the person who had such authority insisted on using
corporate funds to pay creditor other than the I.R.S.
The closest, and most instructive, decision cited was Erwin
v. United States, 591 F.3d 313 (4th Cir. 2010).
In Erwin, the court stated:
Although in some cases questions as to
responsible person status under § 6672
cannot be resolved at summary judgment, see,
e.g., O'Connor, 956 F.2d at 51–52, in this
case they surely can. Given the undisputed
facts here, we can only conclude that the
Government demonstrated Erwin's responsible
person status as a matter of law.
Erwin, 591 F.3d at 323-24.
In that case, some of the factors favored the Government
and others did not.
However, the reason why summary judgment
was appropriate was that "the totality of the circumstances
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conclusively establishe[d] that Erwin had the 'effective power'
to pay the taxes owed by [the company]."
Id. at 321.
The Court notes Government counsel's statement that "even
the facts as interpreted by Mr. Mules are nevertheless
sufficient to find in favor of the United States."
Memorandum of Law [ECF No. 190], at 1 n.1.
Govt.
It may well be
correct that a reasonable jury accepting Mules' version of the
disputed facts, considering the totality of the evidence now of
record, nevertheless could reasonably determine that he was a
responsible person.
find for Mules.
However, such a jury could also properly
Of course, the jury will be rendering its
verdict based upon the trial evidence, not the evidence
presented regarding the instant motion for summary judgment.
IV.
CONCLUSION
For the foregoing reasons:
1.
The United States’ Motion for Summary Judgment Against
Dwight C. Mules [ECF No. 101] is DENIED.
2.
A Trial Scheduling Order shall be issued hereafter.
SO ORDERED, on Thursday, December 17, 2015.
/s/__________
Marvin J. Garbis
United States District Judge
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