VALUEBANK, TEXAS v. UP2U, LLC et al

Filing 148

ORDER granting 106 Motion for Summary Judgment; denying 107 Motion for Summary Judgment; denying 110 Motion for Summary Judgment; denying 112 Motion for Relief from Judgment. The Court ORDERS that the Government is entitled to a liquidate d claim for erroneous refunds in the amount of $636,598.12, subject to distribution upon showing of priority by motion or at trial. This Order is without prejudice to Patrick Fitzgerald Townsend..(Signed by Judge Nelva Gonzales Ramos) Parties notified.(mserpa, 2)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
CORPUS CHRISTI DIVISION
VALUEBANK, TEXAS, et al,
Plaintiffs,
VS.
UP2U, LLC, et al,
Defendants.

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§ CIVIL ACTION NO. 2:12-CV-294
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ORDER

Internal Revenue Service (IRS) tax refunds payable to a number of taxpayers were
received into an account in the name of UP2U, LLC (UP2U). UP2U was a clearinghouse
responsible for allocating the funds among the taxpayers and other claimants who
allegedly earned fees payable from the taxpayers’ refunds and was to distribute the funds
based on those allocations. UP2U maintained one or more accounts at ValueBank,
Texas, for that purpose and funds had accumulated there due at least in part to faulty
bank account information for those who were to receive distributions.

UP2U has

disclaimed any interest in the interpled funds amounting to $1,085,489.49, which have
been deposited into the registry of the Court. Docket Entry February 13, 2013.
SUMMARY OF CLAIMS AND MOTIONS
It is undisputed that the interpled funds represent only the amount withheld from
the taxpayers for fees of private firms or individuals related to the preparation and
processing of the tax returns. The tax refund due to the taxpayers (net of preparation and
processing fees) had already been distributed to the taxpayers prior to this action. Before
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the Court are four competing summary judgment motions of the various claimants,
summarized as follows:
• The United States’ (Government’s) Motion for Full or Partial Summary
Judgment (D.E. 106). The Government contends that the interpled funds
represent erroneous refunds paid in error to some or all of a list of 1,708
taxpayers (seeking recovery on a taxpayer-by-taxpayer basis) and/or contract
payments due to Electronic Return Originators (EROs) doing business through
Simply Taxes d/b/a Mo’ Money Tax Service (MMT) as fees on some or all of
13,269 processed tax returns (seeking recovery on an ERO-by-ERO basis).
The Government also seeks to recover all of the interpled funds because it
erroneously paid out more than the full amount of interpled funds when
looking at all of the 13,269 processed tax returns without regard to what
amounts were captured in this interpleader.
These claims are all based on allegedly false, fraudulent, or excessive
education credits on tax returns prepared through Simply Taxes and its
allegedly related software company, Em-Tax. The Government argues that its
claim, based upon statute, is superior to that of Simply Taxes (and its EROs),
which the Government claims is responsible for the erroneous refunds. While
the Government does not dispute the claim asserted by Illinois, it claims
priority over that claim. The Government argues that no other claimant should
be paid until the Government is made whole.

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• The State of Illinois’ (Illinois’) Motion for Summary Judgment (D.E. 107).
First, Illinois makes a claim to all funds generated by alleged unfair or
deceitful conduct of Simply Taxes d/b/a MMT and Em-Tax with respect to tax
returns prepared for Illinois taxpayers. The alleged wrongful conduct includes
falsely advertising a tax rebate program, using a generous rebate program to
trick taxpayers into providing personal information that was then used without
their permission to file tax returns on their behalf, and misrepresenting the full
cost of MMT’s tax preparation services. Second, it asserts its money judgment
against MMT and resulting competing rights to payment from any funds
claimed by Simply Taxes and Em-Tax on account of any contract rights with
MMT (and its Illinois EROs).
• Simply Taxes, LLC’s (Simply Taxes’) Motion for Summary Judgment
(D.E. 110). Simply Taxes claims the right to recover ERO fees generated in
the preparation of tax returns as a franchisee of MMT in the Chicago area.
Those fees were withheld from the taxpayers pending distribution to Simply
Taxes and/or the individual EROs. Simply Taxes further challenges the claims
of the Government and Illinois on a “no evidence” basis.
• Em-Tax Software, Inc.’s (Em-Tax’s) Motion for Summary Judgment
(D.E. 112). Em-Tax seeks to recover software licensing fees on a per-tax
return basis, which fees were withheld from the taxpayers pending distribution
to Em-Tax. It further disputes the claims of Illinois and the Government,
echoing the arguments of Simply Taxes.
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JURISDICTION
This interpleader action was filed in the 347th Judicial District Court of Nueces
County, Texas, on August 23, 2012. D.E. 1-1. The Government removed the case to this
Court on September 21, 2012, reciting jurisdiction pursuant to 28 U.S.C. § 1331 (federal
question) and 28 U.S.C. § 1346 (United States as a defendant). D.E. 1. This case
involves federal statutory rights to recover erroneous tax refunds and the Government
(improperly named as the Internal Revenue Service) was named as a Defendant. D.E. 11. To the extent that this action also involves state law issues against other Defendants,
the Court has jurisdiction pursuant to 28 U.S.C. § 1367 (supplemental jurisdiction).
Removal was accomplished, in part, pursuant to 28 U.S.C. §§ 1441 (general
removal), 1442 (federal officers or agencies), and 1446 (general procedure). No motion
to remand was filed. However, in its Motion for Summary Judgment, Em-Tax suggests
that removal was improper because it did not consent to removal as required by 28 U.S.C.
§ 1446(b)(2)(A). First, consent is required only if the sole basis for removal is 28 U.S.C.
§ 1441(a), which was not the case here. Second, “A motion to remand the case on the
basis of any defect other than lack of subject matter jurisdiction must be made within 30
days after the filing of the notice of removal under section 1446(a).” 28 U.S.C. §
1447(c). The claim of a defect in consent was not raised within 30 days after removal.
Removal was proper and any objection based on a lack of consent or any other
procedural defect was waived.
FACTS
MMT is a nationwide tax preparation organization based in Tennessee. It offered
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tax preparation services through storefronts open from December through April each
year. Simply Taxes, owned by Rodney Williams, was an MMT franchise operating
under the MMT name in Chicago, Illinois.
At least one of the principals of MMT, Markee (or Markey) Granberry, along with
others, decided to form Em-Tax in the summer of 20111 and began work to provide the
software (Tax Exact, owned by TRX) that MMT franchisees were to use in preparing tax
returns. D.E. 108-1, 108-5. A “transmitter fee” of $47.95 was charged for each return,
with $29.95 going to Em-Tax and $18.00 going to TRX. Illinois claims that the Em-Tax
fee was not properly disclosed to taxpayer customers and provided no value to the
taxpayers.
While Rodney Williams testified that Em-Tax also provided a support line for
software users to get assistance from technical service representatives, Demetrius Moore
(one of the “partners” of Em-Tax) denied any other goods or services being offered. D.E.
108-1, 108-5. Em-Tax was created solely to obtain tax preparation software from another
source and license it to tax preparers for an additional fee. D.E. 108-5. It had no
employees and no other function. Id. Technical support was handled exclusively by
TRX. D.E. 108-5.
TRX, through its owner Doug Hughes, designated UP2U to process tax refunds
and ensure payment of its software licensing fee. D.E. 109-1. Using parsing software
compatible with the Tax Exact program and ValueBank accounts, UP2U would separate
the fees from the net refund, deposit the segregated funds in their respective holding
1

Em-Tax was not officially formed until February 14, 2012. D.E. 108-5.

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accounts, and ultimately authorize ValueBank to make direct deposits or authorize the
EROs to cut checks for taxpayers through the Tax Exact system. D.E. 108-5, 109-1.
Simply Taxes operated eight stores in the Chicago, Illinois area under the MMT
name in 2011. D.E. 110-6. In 2012, Simply Taxes expanded its operation with subfranchises or business arrangements described as “partnerships” with owners of other
storefronts whereby Simply Taxes would pay half of the rent and receive 40 percent of
the fees generated from the preparation of tax returns. D.E. 108-1. Brian Tolliver
testified that the 40 percent paid was of a net profit figure, which changed to a 50/50 split
in 2012 because Rodney Williams basically took over running the store. D.E. 108-11.
The owners of those storefronts, such as Mark Frazier and Brian Tolliver, were
EROs or hired EROs for the returns filed through their respective stores. D.E. 108-1. In
his deposition, Mark Frazier was unable to recite the most basic information about the
process of becoming an ERO, the fees he charged, or the method by which he filed tax
returns. D.E. 108-20. Ronnie Weathersby was a manager and ERO employed by James
Orrington, another storefront owner.

Weathersby was paid by Orrington from

Orrington’s portion of the fees split with Simply Taxes. D.E. 108-1. When deposed,
Weathersby invoked his Fifth Amendment right to remain silent. D.E. 108-12.
At any rate, Rodney Williams testified that his agreement with the EROs was that
he, as Simply Taxes, would collect all ERO fees, retain the portion due to Simply Taxes,
and disburse the remainder to the EROs. D.E. 110-6. Mark Frazier and Brian Tolliver
confirmed this arrangement. D.E. 110-9, 110-10. Williams claims that the only EROs

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associated with Simply Taxes were Brian Tolliver, Markham Frazier, and Ronnie
Weathersby. D.E. 110-6.
In December 2011, Simply Taxes began offering a rebate and incentive program
called “Money on the Spot.” D.E. 108-1. It was supposed to be a program offered by
MMT and built into the tax preparation software, but at the last minute MMT decided not
to offer it, and Simply Taxes took over the concept and offered it through its Chicago
MMT stores.

D.E. 108-2.

It offered customers an up-front discount on their tax-

preparation fees based on such factors as a past tax-preparation relationship, simplicity of
return, and whether a past year’s refund check was easily processed and free of offsets.
D.E. 108-1, 108-2. According to Williams, customers who applied for the Money on the
Spot program had to sign paperwork granting MMT the right of first refusal to prepare
their tax returns. D.E. 110-6.
When asked in interrogatories to provide information regarding the consumers
who applied to participate in the Money on the Spot program, Rodney Williams said that
the program had never been implemented. D.E. 108-2. In his deposition, however, he
insisted that the program did have about 100 or more participants. Id. Trescena Snell
was one such individual who sought out the Money on the Spot program. She applied for
what she believed was a refund anticipation loan. D.E. 108-10. The MMT location took
her last pay stub and some other information and told her they would get back to her.
When she did not hear from them—even with an estimate of what sort of advance she
could expect—she repeatedly called them and was repeatedly told that they would call

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her back. Eventually, she learned that they had prepared and filed a tax return in her
name without additional information or authorization. D.E. 108-10.
Other customers had similar experiences seeking money through the Money on the
Spot program, receiving nothing, and then learning that the MMT store they went to had
filed a tax return on their behalf without their participation and without disclosure of fees.
D.E. 108-13, 108-14, 108-15, 108-16, 108-17, 108-18, 108-19. Additional customers
went for the sole purpose of having their taxes prepared and filed and were quoted fees
without any itemization or disclosure of the purpose of the fees and, when their refunds
arrived, they learned that a much larger amount had been deducted from their refund for
those fees. D.E. 108-19, 108-21, 108-22, 108-23.
The State of Illinois filed suit in the Circuit Court of Cook County, Illinois,
against, among others, MMT, Money Co. USA, LLC, Markey Granberry, and Derrick
Robinson, complaining of false advertising and other unfair or deceptive practices. It
obtained a default judgment in the amount of $217,190.00 jointly and severally against
those particular defendants. D.E. 108-24, 108-25, 108-26. Its claims against Simply
Taxes, Rodney Williams, and Global America Management, LLC remain pending.
This interpleader action involves portions of tax refunds that were withheld or
could not be distributed due to incorrect account information. The funds were generated
as follows from fees charged to taxpayers to be paid from their refunds:
• ERO preparation fees, which were destined, in part, to the EROs
through Simply Taxes (D.E. 109-1). The amount of these fees that have
been interpled is $930,320.23. D.E. 106-21.
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• Transmission Fee a/k/a Transmitter Fee for transmission of the tax
return, involving $29.95 for Em-Tax.

D.E. 109-1.

Initially,

$395,916.04 of these fees were withheld by UP2U from 13,268 returns.
D.E. 106-3. However, the amount was reduced by costs owed to TRX,
UP2U, MMT, and others, resulting in a remaining “ratable share” along
with other fees, which are not itemized. D.E. 106-22, 109-1, 109-2.
• Service Bureau Fee, $39, which went to a Simply Taxes account (D.E.
109-1). The amount of $144,448.97 of those fees was initially withheld
and a “ratable share” as described above are part of the interpled funds.
D.E. 109-2.
• Processing Fee, which went to a Simply Taxes/MMT account (D.E.
109-1). A “ratable share” of $101,251.78 initially withheld from those
fees are part of the interpled funds. D.E. 109-2.
The total amount interpled is $1,085,539.49. Of that, $930,320.23 are ERO fees and
$155,219.26 represents the total of “ratable shares” of the other three fees.
DISCUSSION
There is no question that the interpled funds, in their entirety, represent tax refunds
that the IRS paid to certain individual taxpayers. The refunds were paid into accounts at
ValueBank, Texas, which accounts were controlled by UP2U for the purpose of parsing
those tax refunds between the taxpayers and others, pursuant to alleged agreements for
the payment of preparation and processing fees. Amounts ostensibly due to the taxpayers
after payment of fees have already been disbursed to them. At issue are portions of the
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refunds that were earmarked for ERO fees, transmitter fees, service bureau fees, and
processing fees.
Em-Tax claims the transmitter fees. The remaining fees are claimed by Simply
Taxes, in its own name and for distribution of portions of the ERO fees to the designated
EROs pursuant to sub-franchise or partnership agreements. Illinois seeks to get in line
prior to these claims based on its allegations of false, deceptive, and fraudulent practices
of Simply Taxes and its EROs, who, among other things, allegedly failed to properly
disclose their fees, particularly with respect to their amount and purpose, including a fee
to Em-Tax for a service that had no value to the consumer.
A. The Government’s Claim
According to the Government, it is entitled to all or part of the interpled funds
pursuant to 26 U.S.C. §§ 7402(a) and 7405. It claims that the refunds, in part, were
erroneous because they were based on false claims for education credits.

The

Government seeks to recover amounts specifically traceable to particular taxpayers
whose refunds have not been fully disbursed on a taxpayer-by-taxpayer basis. Because
the amount of the erroneous tax refunds based on education credits processed by Simply
Taxes and its EROs exceeds the amounts still held on a taxpayer-by taxpayer basis, the
Government also seeks to recover amounts earmarked for the wrongdoing EROs on an
ERO-by-ERO basis. Last, the Government claims that the entirety of improper education
credits exceeds the entire amount of the interpled funds, entitling it to the full amount
held in the registry of the Court, regardless of the claims of any other Defendant.

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The first question is whether the Government has shown itself entitled to summary
judgment for “erroneous refunds.” If so, then the Court must determine whether all or
part of that claim trumps the claims of the other Defendants. If it does not trump the
other claims, then the Court must determine to what extent any of the other claims have
been proven and in what manner the interpled funds must be allocated to those claims.
1. The Government’s Evidence
The Government’s claim is based on the Declaration of Cynthia B. West, an IRS
Revenue Agent and Certified Fraud Examiner. D.E. 106-6. Ms. West explained that she
was tasked with determining whether the information available to the IRS supported the
education credits claimed by the taxpayers whose refunds had been processed by Simply
Taxes/MMT-related EROs through ValueBank, Texas. She detailed how an eligible
educational institution is required to file a Form 1098-T to verify that a taxpayer is
enrolled at that eligible institution. Using the list of taxpayers provided by UP2U and
comparing the taxpayer’s return data with the Form 1098-T data, Ms. West prepared
spreadsheets detailing her findings.
Ms. West noted all tax credits that were claimed that could not be corroborated by
a Form 1098-T for the taxpayer or any dependent on that taxpayer’s return, determining
that those credits represent erroneous refunds. She then used three methodologies to
support the Government’s claim as to a portion of the interpled funds earmarked for ERO
fees. First, on a taxpayer-by-taxpayer basis for the 1,708 taxpayers whose refunds are
involved in the interpled funds, she documented a total claim for $636,598.12.

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Second, on an ERO-by-ERO basis, she added up all erroneous refunds attributable
to particular EROs from all of the 13,269 returns, whether or not their ERO fees for those
specific taxpayers were interpled.

Assuming that the erroneous refunds could be

recovered from the EROs from funds generated through other taxpayers and made
available through the interpleader, the Government’s claim is for $885,169.91. Last,
without limitation by the amount or earmarking of the interpled funds, she concluded that
the Simply Taxes/MMT-related EROs were responsible for $1,400,818.30 in erroneous
refunds based on false education credits related to the 1,708 taxpayers, part of which
funds have already been distributed and were not included in the interpleader.
In addition, Ms. West analyzed the amounts that were interpled and earmarked for
transmitter fees, service bureau fees, and processing fees, all of which were to go to
Simply Taxes or Em-Tax. She suggests that the Government could claim the Em-Tax
transmitter fee in the amount of $29.95 for all 1,708 taxpayers included in the ERO
analysis for a total of $51,154.60 of the interpled funds. Looking at the service bureau
fees deposited after February 9, 2012, she suggests that the Government’s claim could
extend to 342 of those fees of approximately $39, for a total of $13,338 more of the
interpled funds. Last, she includes a claim for 342 of the processing fees of about $27
per return for a total of $9,234 more. The grand total of non-ERO fees claimed in this
manner is $73,726.60.
The Government asserts that all of the amounts subject to the interpleader are
subject to its claims because, until distributed to the taxpayer, no amounts may be

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assigned as against the Government. Anti-Assignment Act, 31 U.S.C. § 3727. It is
further entitled to a return of erroneous refunds under 26 U.S.C. § 7405.
2. Challenges to the Government’s Claim
The only response to the Government’s motion for summary judgment was filed
by Simply Taxes. D.E. 127. Simply Taxes argues: (1) the Government cannot claim any
erroneous refunds without joining the involved taxpayers; (2) the Government has not
defeated Simply Taxes’ claim in its summary judgment motion; (3) the West Declaration
is insufficient proof of the Government’s claim because it fails to do a full review of each
taxpayer’s return and focuses solely on the education credits; (4) West’s reliance on
whether or not a Form 1098-T was filed in making her determinations is improper
because the existence of a Form 1098-T is not dispositive; (5) West’s opinion is
unreliable because it is based on hearsay within the IRS records that is not subject to the
business or public record exceptions; (6) West is not qualified as an expert; (7) the
Government has placed Simply Taxes at a disadvantage by taking and keeping its
records, leaving Simply Taxes without access to documents that might support its claim;
and (8) the Government does not have standing in this interpleader because its claims are
properly against the taxpayers and not against the fund. Each of these arguments will be
addressed in turn.
Joinder of Taxpayers. No party has filed a motion under Fed. R. Civ. P. 12(b)(7)
or 19 seeking joinder of taxpayers as necessary or indispensable parties or seeking
dismissal of any claim for failure to join such parties. There is no claim that this action
will prejudice the taxpayers should they seek to defeat the Government’s claim as to their
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particular refunds. In open court, the Government’s attorney represented that any funds it
receives from this interpleader will be credited to the taxpayers and administrative
procedures are in place for addressing taxpayer claims at that time. Additionally, Simply
Taxes, in asserting its own claim to the funds, argues that the taxpayers would not be
entitled to the interpled funds because the funds represent fees that the taxpayers
allegedly agreed to have deducted from their refunds and paid to others, including Simply
Taxes. The Court rejects this failure-to-join argument.
Failure to Affirmatively Defeat Simply Taxes’ Claim.

To prevail in this

interpleader action, the Government need not defeat Simply Taxes’ claim at the outset.
Rather, it need only liquidate its own claim and demonstrate whether it has priority status.
Here, the Government has offered some proof of the amount of its claim and its priority
pursuant to the Anti-Assignment Act. This is not necessarily inconsistent with Simply
Taxes having its own claim and its own place in the hierarchy of claims. The Court
rejects this failure-to-defeat argument.
Failure to Fully Review Returns. The Government has fulfilled its burden of
proof to demonstrate its claim for improper education credits as against the Defendants in
this case. The fact that a challenge to education credits would ordinarily trigger a full
review of each taxpayer’s return, which might then reveal facts that would entitle a
taxpayer to an offsetting refund is not a matter within the Government’s burden of proof
in this interpleader action. Rather, it is more appropriate that any such claim to offsetting
benefits for the taxpayers be proven by Simply Taxes and its EROs who took
responsibility for preparing the tax returns on behalf of the taxpayers. Simply Taxes has
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been afforded notice and an opportunity to defeat the Government’s claim with any
evidence that would defeat it in another proceeding and has failed to submit any such
evidence. The Court rejects this failure-to-fully-review argument.
The Form 1098-Ts Are Not Dispositive.

West described how educational

institutions are required to file Form 1098-Ts with the IRS and how the IRS maintains the
information in its records, whether originally filed electronically or in paper form. West
further described that taxpayer returns should be accompanied by a corresponding Form
1098-T. Filing a claim for educational credits not supported by a Form 1098-T is
technically incorrect.
Simply Taxes contests the dispositive nature of the Government’s reliance on
Form 1098-Ts without providing any evidence to discredit it with respect to any of the
tax returns at issue. Simply Taxes has not attempted to demonstrate that any of the
taxpayers were actually entitled to the education credits claimed on their returns that the
Government has challenged. While it raises “metaphysical doubt,” such is not sufficient
to defeat summary judgment. Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir.
1994) (en banc) (per curiam) (non-movant cannot defeat summary judgment with only
metaphysical doubt as to the material facts, conclusory allegations, unsubstantiated
assertions, or only a scintilla of evidence). The Court rejects this non-dispositive-forms
argument.
Expert’s Reliance on Hearsay. Pursuant to Fed. R. Evid. 703, an expert may
rely on evidence that is not admissible if experts in that particular field would reasonably
rely on that evidence. Without determining whether the IRS records satisfy the business
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records or public records exception to the hearsay rule, the Court determines that Agent
West’s reliance on the IRS records was reasonable. The Government has shown, through
West’s Declaration, that educational institutions are legally required to file Form 1098-T
and that the filed forms are generally used by Revenue Agents in reviewing tax returns.
There is no evidence to suggest that other experts would reject the use of IRS records in a
similar tax analysis.

Such evidence is necessary to a determination that the

Government’s proffer is unreasonable. See Little, supra. The Court rejects this argument
that the expert’s reliance on the underlying facts used was unreasonable.
Expert Qualifications.

Simply Taxes complains that Agent West is not

sufficiently qualified for the analysis undertaken to establish the Government’s claim.
The only complaint about her qualifications is that she is not a certified public
accountant. Nothing in the briefing demonstrates why such certification is required. It is
undisputed that Agent West has served the IRS as a Tax Auditor and as a Revenue Agent
for 25 years. The Government has demonstrated that West has specific training as a
Certified Fraud Examiner and has been continuing her IRS-related education annually.
Simply Taxes has failed to show any reason that this education, training, and experience
is insufficient to support an expert opinion regarding the education credits claimed in this
case pursuant to Fed. R. Evid. 702. Her methodology has been adequately explained and
there is no evidence calling it into question. The Court rejects this challenge to Agent
West’s qualifications as an expert witness.
Missing Records. Simply Taxes complains that the IRS took its records and has
not returned them, leaving it at a disadvantage. The IRS has disclosed that the civil
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division does not have the records, having turned them over pursuant to a subpoena to the
criminal division and that they are likely in the hands of a Grand Jury. The Government
has further disclosed to Simply Taxes in discovery responses reprinted in its Response
(D.E. 124) the method by which copies may be obtained. Simply Taxes stated in open
court that it chose, as a strategic matter, not to seek the records through the method that
the Government disclosed or in any other manner. The Court rejects this missing records
argument.
Government Standing. Simply Taxes argues that the Government’s claim must
be made against the taxpayers and not against the interpled funds. Nothing about the
statute under which the Government states its claim, 26 U.S.C. § 7405, limits its claim to
a proceeding against the taxpayer.

Because the Government makes a claim to the

interpled funds as “erroneous refunds,” and the interpled funds have been traced to
specific taxpayers, it has standing to state its claim. The Court rejects the standing
argument.
3. Conclusion Regarding Government’s Claim
The Court DENIES the “no evidence” arguments of Simply Taxes and Em-Tax as
to the Government’s claim. The Court FINDS that the Government has demonstrated a
claim to “erroneous refunds” in the amount of $636,598.12 directly traceable to the
interpled funds on a taxpayer-by-taxpayer basis. The Government’s claim to additional
funds is not based on traceable “erroneous refunds.” Instead, it represents an equitable
claim to funds that may ultimately be determined to be owned by the EROs or other
wrongdoers. The Court does not adjudicate equitable claims on summary judgment.
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The Court GRANTS IN PART the Government’s Motion for Summary Judgment
(D.E. 106) and ORDERS that the Government is entitled to a claim in the amount of
$636,598.12. The Government is instructed to file a motion seeking disbursement of that
amount, demonstrating any authority for priority of payment against the claims of the
remaining parties. In the absence of such a demonstration, the Government’s liquidated
claim will await pro-rata distribution after the remaining claims are liquidated and
priorities determined.

This holding is without prejudice as to Patrick Fitzgerald

Townsend, an ERO who was permitted to intervene in this action after the Government’s
motion was filed.
B. Simply Taxes and Em-Tax Claims
Simply Taxes and Em-Tax offer some testimony that they had agreements with the
taxpayers to recover specified fees from the refunds. At the same time, there is some
testimony in the record that the taxpayers were never advised of the fees or were advised
of fees far less than those being claimed and that no agreement was ever made for the
fees that Simply Taxes and Em-Tax now seek to recover. There is a disputed issue of
material fact preventing summary judgment on these claims. The Motions for Summary
Judgment of Simply Taxes and Em-Tax (D.E. 110 and 112) are DENIED.
C. Claims of Illinois
As detailed above, Illinois has provided some evidence that the manner by which
taxpayers were solicited and the fees that they were charged by Simply Taxes/MMT were
deceptive and unfair practices under Illinois law. The Government does not contest
Illinois’ claims. Simply Taxes and Em-Tax rely on testimony of Rodney Williams, who
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claims that the taxpayers had written disclosures and signed relevant agreements. The
Court finds that there are disputed issues of material fact precluding summary judgment
on Illinois’ claim based on its allegations of wrongdoing.
With respect to its prior default judgment, Illinois has failed to demonstrate how a
default judgment rendered in state court against non-parties to this case entitles it to the
specific interpled funds. The Motion for Summary Judgment of Illinois (D.E. 107) is
DENIED.
CONCLUSION
For the reasons set out above, the Court GRANTS the Government’s Motion for
Summary Judgment (D.E. 106) and ORDERS that the Government is entitled to a
liquidated claim for erroneous refunds in the amount of $636,598.12, subject to
distribution upon showing of priority by motion or at trial. The Court DENIES Simply
Taxes’ Motion for Summary Judgment (D.E. 110), Em-Tax’s Motion for Summary
Judgment (D.E. 112), and Illinois’ Motion for Summary Judgment (D.E. 107). This
Order is without prejudice to Patrick Fitzgerald Townsend.
ORDERED this 22nd day of January, 2014.

___________________________________
NELVA GONZALES RAMOS
UNITED STATES DISTRICT JUDGE

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