United States of America v. Blake et al

Filing 31

AMENDED OPINION and ORDER Granting in Part and Denying in part 24 MOTION for Summary Judgment Partial Signed by District Judge Robert H. Cleland. (LWag)

UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION

UNITED STATES OF AMERICA
Plaintiff,
v.

Case No. 09-14224

FRANCIS A. BLAKE and MARY JOAN BLAKE,
Defendants.
/
AMENDED OPINION AND ORDER GRANTING IN PART AND DENYING IN PART
PARTIAL MOTION FOR SUMMARY JUDGMENT1
On March 31, 2011, the Government filed the pending motion for summary
judgment against Defendants Francis A. Blake and Mary Joan Blake. Defendants
responded on April 18, 2011, and the Government replied on May 11, 2011. Having
reviewed the briefs, the court concludes a hearing on this motion is unnecessary. See
E.D. Mich. LR 7.1(f)(2). For the reasons stated below, the court will grant in part and
deny in part the motion.
I. BACKGROUND
The Government filed a two-count amended complaint against Defendants
alleging failure to pay all tax liabilities. Count I asserts a claim against Francis Blake for
failure to pay an assessment upon demand for taxes withheld from employees and held
in trust by an employer (“trust fund taxes”) and penalties pursuant to 26 U.S.C. § 6672.
Blake was the sole shareholder of Northern Machinery, Inc., and Northern Holdings,
Ltd. He further served as the president of Northern Holdings and oversaw all aspects of

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This order amends and replaces the “Opinion and Order Granting in Part and
Denying in Part Partial Motion for Summary Judgment” of June 10, 2011. (Dkt. # 30.)

its operations, which included deciding the timing and order of payments to creditors.
An employee of Northern Holdings would immediately inform Blake of any important
correspondence, including notices of tax delinquencies and tax assessments of the
company. The instant case involves the period between 1996 and 1998. On November
1, 1999, the Government made an assessment and penalty against Blake in the amount
of $328,501.03 for failure properly to collect and pay over trust fund taxes for the period
between October 1, 1996, and September 30, 1998. Blake denies that he is liable for
that amount, asserting that several overpayments were inadvertently made throughout
1997. Specifically, he claims that repayment of loans were reported as payroll
expenses, for which trust fund taxes were assessed but not owed. The parties agree
that Blake did not pay the full amount of the assessment.
Count II asserts a claim for unpaid income tax assessments for the years 2000,
2001, and 2002 against Francis Blake and Mary Blake. The Government assessed tax
liabilities and demanded payment of taxes, penalties, and interest equating to the
following unpaid liabilities as of March 30, 2011: $379,204.57 for 2000, $216,955.05 for
2001, and $308,381.99 for 2002. Although Defendants do not challenge their failure to
pay the assessed taxes, they argue that the assessed amounts for years 2001 and
2002 are inaccurate. They claim that significant net operating losses incurred in 2003
may be carried back to 2001 and 2002, thereby reducing or eliminating their tax
liabilities for those years, pursuant to 26 U.S.C. § 172.
II. STANDARD
Under Federal Rule of Civil Procedure 56, summary judgment is proper when
there is no genuine issue as to any material fact and the moving party is entitled to

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judgment as a matter of law. Fed. R. Civ. P. 56(a). “In deciding a motion for summary
judgment, the court must view the evidence in the light most favorable to the nonmoving party, drawing all reasonable inferences in that party’s favor.” Sagan v. United
States, 342 F.3d 493, 497 (6th Cir. 2003). “Once the moving party has made that
showing, the nonmoving party cannot rest on its pleadings, but must identify specific
facts that can be established by admissible evidence that demonstrate a genuine issue
for trial.” Highland Capital, Inc. v. Franklin Nat. Bank, 350 F.3d 558, 564(6th Cir. 2003).
The court does not weigh the evidence to determine the truth of the matter, but
rather, to determine if the evidence produced creates a genuine issue for trial. Sagan,
342 F.3d at 497 (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986)).
The moving party discharges its burden by “‘showing’—that is, pointing out to the district
court—that there is an absence of evidence to support the nonmoving party’s case.”
Horton v. Potter, 369 F.3d 906, 909 (6th Cir. 2004) (citing Celotex, 477 U.S. at 325).
The burden then shifts to the nonmoving party, who “must do more than simply show
that there is some metaphysical doubt as to the material facts.” Matsushita Elec. Indus.
Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). The non-moving party must put
forth enough evidence to show that there exists “a genuine issue for trial.” Horton, 369
F.3d at 909 (citing Matsushita, 475 U.S. at 587). Summary judgment is not appropriate
when “the evidence presents a sufficient disagreement to require submission to a jury.”
Anderson, 477 U.S. at 251-52.
The existence of a factual dispute alone does not, however, defeat a properly
supported motion for summary judgment—the disputed factual issue must be material.
See id. at 252 (“The judge’s inquiry, therefore, unavoidably asks whether reasonable

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jurors could find by a preponderance of the evidence that the plaintiff is entitled to a
verdict – ‘whether there is [evidence] upon which a jury can properly proceed to find a
verdict for the party producing it, upon whom the onus of proof is imposed.’” (alteration
in original) (citation omitted)). A fact is “material” for purposes of summary judgment
when proof of that fact would establish or refute an essential element of the claim or a
defense advanced by either party. Kendall v. Hoover Co., 751 F.2d 171, 174 (6th Cir.
1984) (citation omitted).
In a case seeking judgment on assessed and unsatisfied tax liabilities, the
Government establishes a prima facie case by simply presenting a tax assessment.
Calderone v. United States, 799 F.2d 254, 258 (6th Cir. 1986) (citing Sinder v. United
States, 655 F.2d 729, 731 (6th Cir. 1981)). A taxpayer then bears the burden of
rebutting the presumption by a preponderance of the evidence. Id. “But if the taxpayer
shows the assessment was not correct, the burden shifts back to the government to
maintain and establish the correctness of the assessment.” Sinder, 655 F.2d at 731.
III. DISCUSSION
The Government brings two distinct counts of tax liability in its partial motion for
summary judgment. First, it claims Francis Blake owes $648,702.15 plus interest
accruing after March 30, 2011, pursuant to 26 U.S.C. § 6672 for willful failure to collect,
account for, and pay over trust fund taxes. Second, it claims that the Blakes owe
$904,541.61 plus interest accruing after March 30, 2011, for income taxes in tax years
2000, 2001, and 2002. The counts will be addressed separately.

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A. Liability Pursuant to 26 U.S.C. § 6672
The Government first alleges that Francis Blake is liable for unpaid assessed
taxes and penalties under § 6672, which provides that
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 the payment thereof, shall, in addition to
other penalties provided by law, be liable to a 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). Other provisions of the Internal Revenue Code require employers
to withhold certain taxes from wages paid to employees. See 26 U.S.C. §§ 3102(a),
3402(a). To establish liability under § 6672, the Government must show that Defendant
was (1) a “responsible person” and (2) that he “willfully” failed to pay taxes due. Kinnie
v. United States, 994 F.2d 279, 283 (6th Cir. 1993). Of necessity, this assumes an
amount of trust fund taxes owed but uncollected, unaccounted, or unpaid.
The court must begin with the presumption that the Government has presented a
prima facie case by presenting evidence of the assessments. Calderone, 799 F.2d at
258. It then became incumbent upon Blake to present evidence upon which a
reasonable trier of fact could find the assessment inaccurate by a preponderance of the
evidence. Id. Although Blake offers only his declaration (Resp. Ex. 1) and a copy of a
Form 941c submitted to correct previous tax filings (Resp. Ex. 2), these suffice—just
barely—to show the existence of a genuine issue of material fact with respect to the
amount owed. The court need not determine at this time whether the Form 941c is
inadmissible as hearsay because the declaration of Blake establishes a genuine dispute
as to the amount.

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There can be no doubt that Defendant has taken a perilous gamble by not
presenting documentary evidence or even an affidavit of his accountant. (See Resp. 9
n.4 (“[Defendants’ accountant] is currently in the throes of tax season and unavailable to
Defendants.”).) In opposition to a motion for summary judgment, a respondent must
present admissible evidence sufficient for a reasonable jury to find in his favor.
Highland Capital, 350 F.3d at 564. He may not rest upon mere contentions of additional
evidence to be presented at trial. Fogerty v. MGM Group Holdings Corp., 379 F.3d 348,
353-54 (6th Cir. 2004). Although minimally sufficient, Defendant has presented
evidence, which if accepted by the finder of fact, would prohibit a finding for Plaintiff in
the amount claimed. “Reasonable denials of the assessment’s validity have sufficed in
such cases [as this] to shift the burden back to the government.” Besase, 623 F.2d, 463
F.2d 463, 465 (6th Cir. 1980); accord United States v. Hammon, 277 F. App’x 560, 563
(6th Cir. 2008). Here, the declaration by Blake serves as a reasonable denial, based
upon a misclassification of corporate payments to an individual who was a creditor, an
equity holder, and an employee of the corporation. The court must accept all credible
evidence presented by the nonmoving party in a motion under Rule 56, granting
summary judgment only where the uncontested material facts establish the right of the
movant to judgment as a matter of law. Fed. R. Civ. P. 56(a); Anderson, 447 U.S. at
250.
The court does not encourage such attempts to find the minimum of evidence
necessary to successfully oppose a motion for summary judgment, particularly where
the respondent indicates that other evidence could have been presented. Indeed, by
failing to present any evidence on the issues of whether Defendant was a “responsible

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person” or whether any failure to pay trust fund taxes owed was “willful,” Defendant has
forfeited those issues; he will therefore be liable for any properly calculated assessment
pursuant to § 6672. See Kinnie, 994 F.2d at 283. However, Defendant’s evidence is
minimally sufficient to show a genuine issue of material fact exists regarding the amount
of any liability in Count I.
B. Income Tax Liability for 2000, 2001, and 20022
Defendants have not presented any evidence or argument regarding their liability
for income taxes for the tax year 2000 in the amount of $379,204.57 plus interests and
additions accruing after March 30, 2011. Plaintiff’s motion will, therefore, be granted
with respect to that distinct liability.
Regarding tax years 2001 and 2002, however, Defendants have presented
evidence indicating they owe less than the amounts claimed, and possibly have no tax
liability remaining for those years. Once again, the evidence presented is incomplete
and far from conclusive. As above, however, it suffices to establish a genuine issue of
material fact by evincing a reasonable denying the extent of the liability. See Hammon,
277 F. App’x at 563. The accountant’s letters contain within them documentary
evidence of expenses, which would, if accepted, moderate to some extent the tax
liability of Defendants. (Resp. Exs. 3 & 4.) Although the Government argues that
Defendants have failed to present an alternative calculation, their argument rests upon
multiple offsetting expenses and deductions, some of which are subject to retroactive
application, and any or all of which a reasonable trier of fact could accept or reject.

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This section in the court’s order of June 10, 2011, misstated the years in the
second paragraph. This order corrects and clarifies only this subsection.
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Defendants are not required to present a decision tree or table of potential liability to
survive a motion for summary judgment. Although they have again presented little more
than the minimum to establish the existence of a genuine issue of material fact,
Defendants have met their burden. Therefore, the court will deny the Government’s
motion for summary judgment on Defendants’ tax liability for years 2001 and 2002.
IV. CONCLUSION
IT IS ORDERED that Plaintiff’s motion for partial summary judgment [Dkt. # 24] is
GRANTED IN PART and DENIED IN PART. It is GRANTED inasmuch as Defendant
Francis A. Blake is liable under 26 U.S.C. § 6672 for any properly assessed deficiency
and penalty and inasmuch as Defendants are liable for a tax deficiency of §379,204.57,
plus interest and other statutory additions accruing from March 30, 2011. It is DENIED
on all other claims.

s/Robert H. Cleland
ROBERT H. CLELAND
UNITED STATES DISTRICT JUDGE
Dated: June 10, 2011
I hereby certify that a copy of the foregoing document was mailed to counsel of record
on this date, June 10, 2011, by electronic and/or ordinary mail.
s/Lisa Wagner
Case Manager and Deputy Clerk
[phone]

S:\Cleland\JUDGE'S DESK\C1 ORDERS\09-14224.BLAKE.Amd.Gov.PSJ.nkt.wpd

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