United States of America v. Stanley
Filing
61
ORDER granting in part and denying in part 32 Motion for Summary Judgment Signed by Honorable David C. Bramlette, III on 4/24/2013 (PL)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF MISSISSIPPI
WESTERN DIVISION
UNITED STATES OF AMERICA
PLAINTIFF(S)
V.
CIVIL ACTION NO. 5:11cv117-DCB-RHW
MARKUS BRENT STANLEY
DEFENDANT(S)
OPINION AND ORDER
Plaintiff, the United States, filed suit pursuant to 28 U.S.C.
§§ 1340 and 1345 and 26 U.S.C. § 7402(a) in order to obtain a
judgment reducing Defendant Markus Stanley’s federal income tax
liabilities for years 1998-2010 to judgment. A few minutes after
the deadline for filing dispositive motions, the United States
moved for summary judgment. Stanley moved to strike this motion as
untimely.
The
Court
denied
Stanley’s
motion
but
allowed
him
additional time to supplement his response. Now, with supplemental
briefing complete, Plaintiff’s Motion for Summary Judgment [docket
no. 32] is ripe for review. Having carefully considered it and its
multiple
accompanying
documents,
the
Defendant’s
opposition
thereto, applicable statutory and case law, and being otherwise
fully advised in the premises, the Court grants the motion in part
and denies the motion in part.
SUMMARY OF THE ISSUES
There is no dispute that Stanley has not paid a significant
portion of his income taxes for years 1998-2010. Nor is there any
dispute, material or otherwise, that Stanley owes taxes for years
2008-2010, which accrued after he filed bankruptcy, or that Stanley
owes
taxes
for
2005-2008,
the
three
years
before
he
filed
bankruptcy. See 11 U.S.C. § 507(a)(8)(i); 11 U.S.C. § 523(a)(1)(A).
The dispute is whether Stanley’s tax liabilities for years 19982005 were discharged in bankruptcy under 11 U.S.C. § 523(a)(1)(C).
See generally, In Re Markus Brent Stanley, No. 09-01727 (Bankr.
S.D. Miss.). The United States contends that Stanley willfully
attempted to defeat or evade his tax liabilities for these years,
exempting them from discharge. In support of this contention, it
provides a thirty-one page Statement of Facts (“SoF”) [docket no.
34], supported by hundreds of pages of documentary evidence [docket
no. 31]. Stanley mostly opposes this evidence with conclusory
allegations; however, he does provide some strained evidence to
support his opposition. The narrow issue for the Court is whether
the evidence, taken as whole, exhibits a genuine dispute as to
whether Stanley attempted to evade or defeat his taxes for years
1998-2005.
STANDARD OF REVIEW
Summary judgment is apposite “if the movant shows that 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. Pro. 56(a).
“A fact is ‘material’ if its resolution in favor of one party might
affect the outcome of the lawsuit under governing law. An issue is
‘genuine’ if the evidence is sufficient for a reasonable jury to
return a verdict for the non-moving party.” Ginsberg 1985 Real
2
Estate P’ship v. Cadle Co., 39 F.3d 528, 531 (5th Cir. 1994)
(citations omitted). The party moving for summary judgment bears
the initial responsibility of apprising the district court of the
basis for its motion and the parts of the record which indicate the
absence of a genuine issue of material fact. Celotex Corp. v.
Catrett, 477 U.S. 317, 323 (1986).
“Once the moving party presents the district court with a
properly supported summary judgment motion, the burden shifts to
the
non-moving
party
to
show
that
summary
judgment
is
inappropriate.” Morris v. Covan World Wide Moving, Inc., 144 F.3d
377, 380 (5th Cir. 1998). “The evidence of the non-movant is to be
believed, and all justifiable inferences are to be drawn in his
favor.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986).
But the nonmovant 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).
Moreover, “[t]he mere existence of a scintilla of evidence is
insufficient to defeat a properly supported motion for summary
judgment.” Anderson, 477 U.S. at 252. Summary judgment must be
rendered when the nonmovant “fails to make a showing sufficient to
establish the existence of an element essential to that party’s
case, and on which that party will bear the burden of proof at
trial.” Celotex Corp., 477 U.S. at 322.
3
RELEVANT LAW
Congress has provided that a debtor’s liabilities are not
discharged for a tax “with respect to which the debtor made a
fraudulent return or willfully attempted in any manner to evade or
defeat such tax.” 11 U.S.C § 523(a)(1)(C). Interpreting this
provision, the Fifth Circuit has recently explained that this
exception “contains a conduct requirement . . . and a mental state
requirement.” United States v. Coney, 689 F.3d 365, 371 (5th Cir.
2012)
(citation
omitted).
In
order
to
satisfy
the
conduct
requirement, the United States must show that “the debtor attempted
in any manner to evade or defeat a tax.” Id. (internal quotations
marks and alteration omitted). This conduct can include attempts to
evade tax assessment, such as failing to file tax returns or filing
inaccurate tax returns, or collection, such as avoiding the payment
of assessed taxes. Id. at 372-73 (citations omitted).
As for the mental state requirement, the United States must
show that the debtor attempted to defeat these taxes “willfully.”
Id. at 374. The Fifth Circuit employs a three-part test for
determining willfulness. Under this test, the United States must
show that “the debtor (1) had a duty to pay taxes under the law,
(2) knew he had that duty, and (3) voluntarily and intentionally
violated that duty.” Id. at 374 (citing In re Bruner, 55 F.3d 195,
197 (5th Cir. 1995)). Again recently, the Fifth Circuit reiterated
that an attempt is willful if it is done “voluntarily, consciously
4
or knowingly, and intentionally.” Coney, 689 F.3d at 374 (internal
quotations
and
citations
omitted).
It
expressly
rejected
the
argument that specific intent to thwart IRS collection efforts,
i.e.,
defraud
the
government,
is
required
for
a
finding
of
willfulness. Id. A court evaluates the debtor’s conduct and state
of mind based upon the totality of the circumstances. Id.
Having considered how to apply this law, the Court adds that
it is hard to envision a debtor violating the conduct requirement
without also violating the mental state requirement because an
attempt requires some form of intent to commit an act. See American
Heritage Dictionary 139 (2nd college ed. 1991) (“attempt” means “to
try to do, make, or achieve” (emphasis added)). While a nonwillful
attempt may not be a complete contradiction, it would require an
odd
circumstance
for
a
court
to
conclude
that
a
debtor
involuntarily tried to evade or defeat his taxes. Because this is
so, the evidence used to analyze a debtor’s conduct tends to be the
same evidence used to evaluate his mental state. See, e.g., Coney,
689 F.3d at 371, In re Fretz, 244 F.3d 1323 (11 Cir. 2001). In re
Fegeley, 118 F.3d 979 (3rd Cir. 1997).
ANALYSIS
As stated in the summary of the issues, the inquiry before the
Court pertains to the intent behind Stanley’s failure to pay taxes
for 1998-2005, that is, whether Stanley attempted to evade or
defeat these taxes. Looking simply at the big picture, the evidence
5
provided by the United States suggests that he did. First, Stanley
was aware that he had a duty to pay taxes (he filed his tax
returns, albiet consistently late). See generally SoF ¶¶ 10-23.
Second, some years Stanley simply ignored or attempted to dodge the
assessment of his taxes (he filed his 1998 tax return in 2004, only
after an IRS audit, and failed to report taxable income on his 2001
and 2003 tax returns).1 Id. ¶¶ 11, 14, 16. Third, Stanley has not
paid his taxes in full for any year in the last decade and knew
that he was not paying his taxes in full (other than withholdings
from his income, he rarely made payments to satisfy his outstanding
liabilities and when he did make payments they were de minimus).
Id. Fourth, Stanley was aware that this conduct was unacceptable
(as early as 2003 IRS Agent McCullough attempted to collect his
taxes). Id. ¶ 31. Finally and critically, Stanley possessed the
financial resources to pay his taxes, at least in part (he earned
a steady and substantial income practicing medicine throughout the
time he chose not to pay his taxes).2 Id. ¶¶ 24-30. At minimum, the
1
The Court points out these particular years in order to show
that Stanley’s conduct is not on par with the debtor in Haas, who
was credited for filing accurate tax returns. In re Haas, 48 F.3d
1153 (11th Cir. 1995), abrogated in part, In re Griffith, 206 F.3d
1389, 1395–96 (11th Cir. 2000) (en banc).
2
For the record, the Court’s citation to the Government’s SoF
also incorporates the evidence on which these facts are based. In
his supplemental memorandum [docket no. 54] Stanley attempts to
dispute some of the assertions in the SoF. Stanley, however, did
not provide any evidence to create a material dispute as to the
“big picture.”
6
totality of the circumstances indicates that since 1998 Stanley
shirked his legal duty (of which he was conscious) and hoped that
his tax liabilities would somehow magically disappear (perhaps
through bankruptcy). This evidence alone indicates that Stanley
violated the conduct requirement of 11 U.S.C § 523(a)(1)(C). See In
re Fegeley, 118 F.3d at 984.
Moreover, a closer look at Stanley’s financial decisions
during
the
decade
in
question
suggests
a
greater
degree
of
culpability. There is some evidence, admittedly circumstantial, to
indicate that Stanley undertook calculated maneuvers to prevent the
IRS from collecting his unpaid tax liabilities. To cite a primary
example, Stanley’s principal residence is titled solely his wife’s
name, even though Stanley was personally involved in securing two
mortgages on this property and regularly pays the mortgage and
related expenses for this property.3 SoF ¶¶ 70-77. This arrangement
has prevented the IRS from placing a lien on his residence in order
to collect the outstanding tax liabilities that Stanley appears
uninterested
in
paying.
Stanley
attempts
to
justify
this
arrangement by explaining that he was required to co-sign for the
loan in order to secure its financing because his wife had no
income. This explanation only heightens the Government’s suspicion
that Stanley did not take any ownership in his principal residence
3
In his Chapter 7 Bankruptcy schedules, Stanley disclosed no
ownership of any real property but claimed monthly rent or a home
mortgage expense of $2,122.60 for his family.
7
simply to place it outside of the IRS’s reach. Such conduct
exhibits an attempt to evade or defeat his taxes. See In re
Mitchell, 633 F.3d 1319, 1329 (11th Cir. 2011).
As another example, in 2005, after substantial efforts and
negotiations with Stanley’s accountant, IRS Agent McCollough worked
out an installment agreement for Stanley to satisfy his 1998-2003
tax liabilities, which at that point totaled $437,492.20. The
agreement required Stanley to withhold $5,000.00 per month from the
income generated from his recently accepted job, which paid his
earnings into his newly created and solely-owned corporation,
Vicksburg Primary Care Team (“VPCT”).4 Shortly after Stanley agreed
in principal to allow his payments to be withheld from his VPCT
income and after he issued a voided check to initiate a monthly
direct debit of $5,000 to the IRS, McCollough closed the IRS’s case
against Stanley. Yet, Stanley made just one $5,000.00 payment
toward his 1998-2003 tax liabilities. Moreover, McCollough, who was
reassigned the case in 2008, discovered that VPCT never filed the
necessary forms with the IRS indicating that it had withheld
federal income taxes from Stanley and in fact never withheld his
income taxes. To the contrary, she found that Stanley routinely
disbursed large amounts into his personal checking account or to
4
VPCT, Mission Primary Care Clinic, and Stanley’s tax
liabilities have been the subject of previous litigation in this
Court. See Mission Primary Care Clinic, PLLC v. Director, IRS, 606
F. Supp. 2d 638 (S.D. Miss. 2009).
8
his wife, consistency leaving minimal balances in the VPCT account.
See McCullough Decl. ¶¶ 27-37, docket no. 31-26 at 10-13.5 Here
again, Stanley’s explanation that he thought he was paying $5,000
each month to the IRS is difficult to accept.
Turning
quickly
to
the
three-part
test
for
evaluating
Stanley’s intent, Stanley concedes that he had a duty to pay these
taxes and was aware of this duty “in the general sense.” This
concession is enough to satisfy the first two parts of this test.
And even if Stanley had not conceded this point, as stated above,
the fact that Stanley filed his tax returns for the years in
question is evidence of his knowledge of his duty to pay taxes. As
for whether his evasion or defeat of his tax liabilities was
willful under the third part of this test, again, his conduct
indicates that it was. The evidence suggests that Stanley knew of
his liabilities, could have paid some of his liabilities, but chose
not to. In fact, circumstantial evidence suggests that he took
affirmative action to frustrate IRS collection efforts. In short,
Stanley does not appear to be the honest but unfortunate debtor the
bankruptcy code was designed to protect. In re Bruner, 55 F.3d at
200 (citing Grogan v. Garner, 498 U.S. 279, 285 (1991)).
Nevertheless, after all this, the Court will not grant summary
judgment in favor of the United States on this issue. Stanley
5
McCollough’s efforts to collect these taxes were halted when
Stanley filed for bankruptcy in 2009.
9
offers a few shreds of evidence, some of which are arguably
admissible, to show that (1) he has attempted to comply with the
IRS in order to satisfy his liabilities and (2) his failure to pay
his taxes were part of his inability to manage his financial
affairs caused by his unstable personal life. As for the evidence
he offers to support his first contention, IRS Agent Gunnel’s 2004
statement in a Fraud Awareness Lead Sheet that Stanley “had worked
with
collection
after
getting
behind
in
filing
returns,”
if
admissible, creates only the slightest of doubt about his conduct
and mental state, particularly viewed in light of his default of
the 2005 installment arrangement. As for his personal and other
financial troubles, again, to the extent that the evidence Stanley
adduces in support is admissible,6 the United States convincingly
argues that
the
inferences
Stanley
draws
from
it
are
mostly
rebutted by his other financial activities during this period and
the fact that Stanley practiced medicine during this time. But,
given
that
the
present
case
is
built
upon
indirect
or
circumstantial evidence—as such cases typically are—and involves
Stanley’s mental state, the Court concludes that the better course
6
The Government’s challenge to Stanley’s proffered expert
testimony appears well-founded, although the Court will reserve
judgment on this issue until the trial. The Court notes that even
if the expert testimony is reliable and not hearsay it is not clear
what value the testimony has to the present case. The Court cannot
infer that Stanley could not have attempted to evade his taxes from
the generic assertion that Stanley’s bipolar disorder affected all
aspects of his behavior.
10
is to make findings of fact at the upcoming bench trial. See, e.g.,
Irwin v. United States, 558 F.2d 249, 257 (5th Cir. 1977) (“It has
been established in this court that summary judgment is improper if
factual issues necessary for decision involve the state of mind of
a party.” (citing Croley v. Matson Navigation Co., 434 F.2d 73, 77
(5th Cir. 1971)). Had Stanley not filed his tax returns for most of
the years in dispute and not made an effort to cooperate with the
IRS (even if it appears feigned), then the Court might find it
unnecessary to proceed to trial. The Court harbors the slightest of
reservations as to Stanley’s intent and therefore finds that the
United States did not carry its summary-judgment burden of showing
absence of a genuine issue as to whether Stanley attempted to evade
his taxes for years 1998-2005. See Catrett, 477 U.S. at 323.
Although not dispositive, having compared Stanley’s conduct
with the conduct of the debtors in the two most relevant Fifth
Circuit cases,
Bruner
and Coney,
the weight
of
the
evidence
produced in this case falls closer in the spectrum to the evidence
produced in Bruner and than in Coney. And in Bruner the bankruptcy
court conducted a hearing to determine whether the evidence showed
that
the
Bruners
knew
about
but
resisted
paying
their
tax
liabilities. See In re Bruner, 55 F.3d at 200. In fact, the
circumstances here are very similar to those in Bruner, where Dr.
Bruner, the husband-debtor, could have but chose not to pay his
taxes and hid his income and assets in a shell entity. Id. at 197-
11
98. In Coney, the district court granted summary judgment for the
United States. There, the debtor had pleaded guilty to criminal
conduct related to his taxes, thereby providing the United States
with direct
evidence
of
his
attempt to
avoid
IRS
collection
efforts. Coney, 689 F.3d at 376. Indeed, judging simply from the
relevant cases cited by the United States, granting judgment based
on the absence of genuine dispute as to the debtor’s intent,
although certainly warranted in some instances, seems to be the
exception rather than the rule. See In re Mitchell, 633 F.3d 1319
(11th Cir. 2011) (bankruptcy court made findings of fact); In re
Jacobs, 490 F.3d 913 (11th Cir. 2007) (same); In re Fretz, 244 F.3d
1323 (11 Cir. 2001) (same); In re Lacheen, 365 B.R. 475 (Bkrtcy.
E.D. Pa. 2007) (denying summary judgment, holding bench trial);
Landi v. United States, 316 B.R. 363 (M.D. Fla. 2004) (bankruptcy
court made findings of fact); In re Spiwak, 285 B.R. 744 (S.D. Fla.
2002) (same). But see, In re Obinwa, 2012 WL 5555715 (Bkrtcy. M.D.
Fla. Nov. 13, 2012) (granting summary judgment); In re Harris, 328
B.R. 837 (Bkrtcy. S.D. Ala. 2005) (granting summary judgment in
part and denying it in part).
ORDER
Accordingly, IT IS HEREBY ORDERED THAT the Motion for Summary
Judgment [docket no. 32] by the United States is DENIED IN PART AND
GRANTED IN PART. Because United States presented prima facie
evidence that Stanley’s taxes for years 2008-2010, which accrued
12
after he filed bankruptcy, are owed to the United States, and that
Stanley’s tax liabilities for the years 2005-2008 are excepted from
discharge under 11 U.S.C. §§ 507(a)(8)(i) and 523(a)(1)(A), these
tax liabilities will be reduced to final judgment. Issues of fact
regarding
Stanley’s
tax
liabilities
for
the
years
1998-2005,
however, remain. Therefore, the Court will hold a bench trial on
the issue of whether Stanley’s remaining tax liabilities were
discharged in bankruptcy. No final judgment shall issue until such
time as the Court determines the full amount of Stanley’s unpaid
tax liabilities, interest, and penalties.
So ORDERED, this the 24th day of April, 2013.
/s/ David Bramlette
UNITED STATES DISTRICT JUDGE
13
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