Arriondo vs. United States of America
Filing
25
MEMORANDUM OPINION AND ORDER granting 14 MOTION for Summary Judgment United States of America's Motion for Summary Judgment Against W. Raul Arriondo and Brief (Calculation of Pretrial Judgment Interest 7/29/2016. Hearing set for 8/5/2016 at 03:00 PM at Courtroom 9B before Judge Sim Lake.) (Signed by Judge Sim Lake) Parties notified. (aboyd, 4)
United States District Court
Southern District of Texas
ENTERED
July 22, 2016
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
W. RAUL ARRIONDO,
§
§
§
§
§
§
§
§
§
Plaintiff,
v.
UNITED STATES OF AMERICA,
Defendant.
David J. Bradley, Clerk
CIVIL ACTION NO. H-14-2734
MEMORANDUM OPINION AND ORDER
Plaintiff W.
Raul Arriondo
("Plaintiff" or "Arriondo")
was
assessed a trust fund recovery penalty under Internal Revenue Code
§
6672 for the fourth quarter of 2008 and the first quarter of 2009
(the "period in question") .
States of America
Arriondo sued defendant the United
("Defendant"
or
"United States"),
seeking a
refund for overpayment of taxes and to be found not liable as a
responsible person under I.R.C.
§
6672. 1
Pending before the court
is United States of America's Motion for Summary Judgment Against
W. Raul Arriondo and Brief ("Motion for Summary Judgment")
Entry No.
Summary
14) .
Judgment
For the
will
be
reasons
stated below,
granted,
and
this
(Docket
the Motion for
action
will
be
dismissed.
1
No. 1.
Plaintiff' s Original Complaint
("Complaint") ,
Docket Entry
I.
Background
Arriondo began working for American Steel Building Company,
Inc. ("American Steel") in early 2007 and served as CEO, president,
treasurer, and a director. 2
He remained at American Steel until
after the company filed for bankruptcy on June 5, 2009. 3
Steel
was
the
wholly
owned
subsidiary
of
American
American
Industrial
Investment Corporation, an Employee Stock Ownership Plan Company. 4
Arriondo received an annual salary but was not an owner of American
Steel or American Industrial Investment Corporation. 5
2
See Oral
Deposition of
W.
Raul
Arriondo
( "Arriondo
Deposition"), Exhibit 14 to Motion for Summary Judgment, Docket
Entry No. 14-16, pp. 3:12-4:16.
Exhibit 14 includes four
deposition transcript pages on each page of the attachment.
Therefore, citations are to the electronic page number in Exhibit
14 followed by the deposition transcript page number (e.g., "3:12"
references the third page of the electronically filed Exhibit 14
and the twelfth page of deposition transcript, which appears on
page 3 of Exhibit 14) . Texas Franchise Tax Public Information
Report, Exhibit 2 to Motion for Summary Judgment, Docket Entry No.
14-4; Plaintiff and Counterclaim Defendant's Response to United
States of America's First Set of Interrogatories ("Arriondo
Interrogatory Responses"),
Exhibit 3 to Motion for Summary
Judgment, Docket Entry No. 14-5, p. 3 Interrogatory 1, p. 4
Interrogatory 8.
In October of 2007, Arriondo became American
Steel's registered agent.
See Statement of Change of Registered
Office/Agent, Exhibit 1 to Motion for Summary Judgment, Docket
Entry No. 14-3.
3
See Arriondo Deposition, Exhibit 14 to Motion for Summary
Judgment, Docket Entry No. 14-16, pp. 16:64-17:65, p. 10:79, p.
23:89-90.
4
See Arriondo Interrogatory Responses, Exhibit 3 to Motion for
Summary Judgment, Docket Entry No. 14-5, p. 4 Interrogatory 8.
5
See Arriondo Deposition, Exhibit 14 to Motion for Summary
Judgment, Docket Entry No. 14-16, p. 3:11-12; p. 12:48 (Arriondo
received the highest salary at American Steel) . See also Form 1040
(continued ... )
-2-
Arriondo ran the business along with other employees and was
part of the group that handled the day-to-day operations of the
company,
but he was focused on increasing sales. 6
Arriondo met
with company executives weekly and was informed about operations. 7
At
these
weekly meetings,
Arriondo always
asked
the
financial
director or controller if there was enough money to buy steel and
to cover employee salaries. 8
5
( • • • continued)
U.S. Individual Income Tax Returns for Arriondo, 2007-2009, Exhibit
5 to Motion for Summary Judgment,
Docket Entry No.
14-7;
Declaration of Wilfredo Raul Arriondo ( "Arriondo Declaration") ,
Exhibit B to W. Raul Arriondo's Opposition to United States of
America's Motion for Summary Judgment ("Plaintiff's Response") ,
Docket Entry No. 17-3, p. 1 ~~ 2-3.
6
See Arriondo Declaration, Exhibit B to Plaintiff's Response,
Docket Entry No. 17-3, p. 1 ~~ 6-7 ("American Steel had over 100
employees when I arrived when an organizational structure that
provided management by department heads.
I managed the Company
through the department heads, so that I could concentrate on
increasing sales."); Arriondo Deposition, Exhibit 14 to Motion for
Summary Judgment, Docket Entry No. 14-16, p. 7:26 (agreeing that he
was included in the group that handled day-to-day operations);
Plaintiff's Response, Docket Entry No. 18, p. 6 ~ 6 ( "Arriondo
admits that he 'handled the day-to-day operations' but denies that
he was involved with the detail of American Steel's departmental
operations beyond the department heads.").
7
Arriondo Declaration, Exhibit B to Plaintiff's Response,
Docket Entry No. 17-3, p. 1 ~ 8; Arriondo Deposition, Exhibit 14 to
Motion for Summary Judgment, Docket Entry No. 14-16, p. 6:23-24, p.
12:46, p. 15:57.
8
See Arriondo Declaration, Exhibit B to Plaintiff's Response,
Docket Entry No. 17-3, p. 1 ~ 8; id. ~ 9 ("By covering employee
salaries, I made it clear from the beginning that the term included
paying the IRS for payroll taxes.
I was conscious of the need to
pay the withholding taxes to the IRS and wanted assurances that
payment would be made."); see also Arriondo Deposition, Exhibit 14
to Motion for Summary Judgment, Docket Entry No. 14-16, p. 6:24.
-3-
Arriondo
had
authority
to
hire
and
fire
employees,
the
authority to enter into contracts on behalf of American Steel, and
input
into
employee
salary
amounts. 9
Arriondo
authorized check signer at American Steel. 10
to the company' s
books and records . 11
monthly bank statements, and "[Arriondo]
was
always
an
Arriondo had access
American Steel received
could therefore see how
much money American Steel was receiving and spending after he knew
See
Judgment,
Arriondo
Judgment,
9
Arriondo Deposition, Exhibit 14 to Motion for Summary
Docket Entry No. 14-16, p. 6:23-24, p. 7:26-27, p. 12:48;
Interrogatory Responses, Exhibit 3 to Motion for Summary
Docket Entry No. 14-5, p. 3 Interrogatories 4, 5.
10
See Arriondo Interrogatory Responses, Exhibit 3 to Motion for
Summary Judgment, Docket Entry No. 14-5, p. 5 Interrogatory 12
("Identify all . . . persons who were authorized to sign checks on
behalf of American Steel during the period in question." "I could
sign checks.
Donna Latiolais was authorized to make electronic
payments and transfer money between accounts.") . The United States
asserts that Arriondo signed every check issued by American Steel
during the period in question and was the only one at the company
that signed checks See Motion for Summary Judgment, Docket Entry
No. 14, p. 10 ~ 17; Sampling of Cancelled Checks written by
American Steel during the period in question,
all bearing
Arriondo's signature, Exhibit 7 to Motion for Summary Judgment,
Docket Entry No. 14-9; Arriondo Deposition, Exhibit 14 to Motion
for Summary Judgment, Docket Entry No. 14-16, p. 17:66. However,
Arriondo clarified that the director of finance, Donna Latiolais
("Latiolais") had a stamp of his signature that she used for checks
since he traveled often, although she refused to personally sign
checks for the company.
See Arriondo Declaration, Exhibit B to
Plaintiff's Response, Docket Entry No. 17-3, p. 2 ~ 13.
11
See Arriondo Deposition, Exhibit 14 to Motion for Summary
Judgment, Docket Entry No. 14-16, p. 8:31.
-4-
of the unpaid taxes. " 12
Arriondo also had the authority to purchase
and sell assets for American Steel during the period in question.
13
American Steel faced financial challenges due to the economic
downturn in 2008. 14
finances
were
in
Arriondo was aware of that American Steel's
trouble
and
that
the
company
"always
had
a
challenge" financially and "struggl[ed] with cash." 15 Additionally,
the prior CEO of American Steel, John Garland, had cashed out his
ownership upon departure, leaving American Steel with a large debt
secured by company assets. 16
12
See id. at 9:33-34.
See also Plaintiff's Response, Docket
Entry No. 18, p. 11 ~ 20.
The bank statements went directly to
Latiolais; Arriondo did not receive them personally. See Arriondo
Declaration, Exhibit B to Plaintiff's Response, Docket Entry No.
17-3, p. 2 ~ 11.
See Plaintiff's Response, Docket Entry No. 18, p. 12 ~ 22;
Arriondo Interrogatory Responses, Exhibit 3 to Motion for Summary
Judgment, Docket Entry No. 14-5, p. 5 Interrogatory 14; Arriondo
Deposition, Exhibit 14 to Motion for Summary Judgment, Docket Entry
No. 14-16, p. 14:55.
13
14
See Arriondo Deposition, Exhibit .14 to Motion for Summary
Judgment, Docket Entry No. 14-16, p. 6:21-24, p. 12:46, p.
25:99-100.
15
See id. at p. 6:21-24, p. 12:46, p. 17:66-67, p. 25:99-100;
Arriondo Declaration, Exhibit B to Plaintiff's Response, Docket
Entry No. 17-3, p. 1 ~~ 4, 6-8;
16
See Arriondo Declaration, Exhibit B to Plaintiff's Response,
Docket Entry No. 17-3, p. 1 ~~ 4, 6-8; Arriondo Deposition, Exhibit
14 to Motion for Summary Judgment, Docket Entry No. 14-16, pp.
6:24-7:25; 22:87 ("[W]hen I took over the company, the previous CEO
had .
. inflated the value of the stock so he could cash out at
a higher value when the company was never valued at the value that
he stated prior.").
-5-
In April of 2009 the State of Texas sent American Steel a
notice of levy for unpaid excise tax.
17
Arriondo was aware of the
"issues with the state controllers" towards the end of 2008. 18
So at the end of '08, you were aware that the
corporation was having difficulty paying taxes owed to
the State of Texas?
Q:
A:
The sales taxes had not been paid which I remember
when I had found out, I was furious and I said well, why
isn't this -- is this not being paid, you need to take
care of this right away.
And the
and I think
[Latiolais] said well, we don't have the funds.
And I
said I don't care if we don't have the funds.
You need
to go over there and make a payment arrangement because
we can't be -- I said they're going to shut us down. We
can't do that.
That was -- that's how adamant I was
about getting this thing taken care of.
But other than
that, I had no other knowledge of anything else not
having been paid. 19
Latiolais, a certified public account and American Steel's director
of finance, assured him that the state tax issue was a timing issue
related to a tax return,
and she was able to work out a payment
schedule fairly easily. 20
Arriondo did not investigate further or
inquire about other potential tax issues. 21
17
See Arriondo Deposition, Exhibit 14 to Motion for Summary
Judgment, Docket Entry No. 14-16, p. 17:66-67. "[T]oward the tail
end of '08 [Arriondo] instructed [Latiolais] to . . . make payment
arrangements to pay these taxes" but he did not remember getting a
levy letter from the state that "late into '09.").
18
See Arriondo Deposition, Exhibit 14 to Motion for Summary
Judgment, Docket Entry No. 14-16, p. 17:67-68.
19
See id. at 17:68.
20
See Arriondo Declaration, Docket Entry No. 17-3, p. 3
21
See
id.;
Arriondo
Deposition,
-6-
Exhibit
14
~
22.
to Motion for
(continued ... )
Arriondo signed documents borrowing hundreds of thousands of
dollars for American Steel on June 2,
period in question began. 22
2008,
shortly before the
At one point (Arriondo thought it was
March or April of 2009), Arriondo also advanced the company money
to
cover
payroll,
but
he
denies
that
he
knew
the
financial
situation was so bleak that American Steel could not survive. 23
Throughout the period in question Arriondo was aware of the
requirements to withhold and pay payroll taxes and to pay taxes
quarterly. 24 American Steel paid payroll taxes without incident for
over a year after Arriondo began working there. 25
Steel's quarterly federal tax return forms
However, American
(the "Forms 941")
for
the fourth quarter of 2008 and the first quarter of 2009 show taxes
were
still
due
when
the
returns
were
filed,
with partial
tax
21
( • • • continued)
Summary Judgment, Docket Entry No. 14-16, p. 17:67-68.
22
See Commercial Security Agreement, Exhibit F to Plaintiff's
Response, Docket Entry No. 17-7. The United States characterizes
this as borrowing money during the period in question, but, as
Arriondo points out, the loan date was 06-02-2008, while the period
in question began in the fourth quarter of 2008.
See Plaintiff's
Response, Docket Entry No. 18, p. 12 ~ 22.
23
See Arriondo Deposition, Exhibit 14 to Motion for Summary
Judgment, Docket Entry No. 14-16, p. 10:40, p. 21:82; see also
Plaintiff's Response, Docket Entry No. 18, p. 12 ~ 24.
24
See Arriondo Deposition, Exhibit 14 to Motion for Summary
Judgment, Docket Entry No. 14-16, p. 3:10, p. 16:61; Arriondo
Declaration, Exhibit B to Plaintiff's Response, Docket Entry No.
17-3, p. 1 ~ 9.
25
See Arriondo Declaration, Exhibit B to Plaintiff's Response,
Docket Entry No. 17-3, p. 1 ~ 10; Form 941 for Third Quarter 2008,
Exhibit L to Plaintiff's Response, Docket Entry No. 17-12.
-7-
deposits for the fourth quarter of 2008 and no tax deposits for the
first quarter of 2009. 26
Latiolais served as American Steel's director of finance from
early
2008
until
abruptly
leaving
in early
2009. 27
Latiolais
prepared, signed, and filed the tax return for the fourth quarter
of 2008. 28
She prepared the return for the first quarter of 2009,
but left the company before filing it. 29
Latiolais did not present
Arriondo with the returns for his review, and had not done so in
the
past. 30
Arriondo
agreed
that
it
was
ultimately
his
responsibility to ensure payroll taxes owed were paid, that he did
not follow up with Latiolais regarding payment of employment taxes,
did not ask to see payroll tax deposits, and did not ask to see any
26
See Form 941 for Fourth Quarter 2008 and Form 941 for First
Quarter 2009, Exhibit 4 to Motion for Summary Judgment, Docket
Entry No. 14-6.
27
Arriondo Declaration, Exhibit B to Plaintiff's Response,
Docket Entry No. 17-3, p. 2 ~~ 11, 14; Declaration of Steve Dawson
("Dawson Declaration"), Exhibit C to Plaintiff's Response, Docket
Entry No. 17-4, p. 1 ~~ 2, 3.
28
See Arriondo Declaration, Exhibit B to Plaintiff's Response,
Docket Entry No. 17-3, p. 2 ~~ 11-13.
Id. at 2 ~ 12. Arriondo "admits he reviewed and signed Texas
Franchise Tax Public Information Reports, pursuant to which he was
listed as an officer and director of the Company. Arriondo denies
that this has any relevance to this case." Plaintiff's Response,
Docket Entry No. 18, p. 6 ~ 8.
See Texas Franchise Tax Public
Information Report, Exhibit 2 to Motion for Summary Judgment,
Docket Entry No. 14-4.
30
-8-
evidence that the taxes were being paid, although he could have. 31
Arriondo relied on Latiolais and the "sufficient,
sophisticated"
procedures that had been in place and effective since before he
began
working
at
American
Steel,
even
after
learning
of
the
delinquent state excise taxes. 32
On May 18, 2009, Steve Dawson ("Dawson"), who began acting as
controller after Latiolais's
departure,
informed Arriondo
that
Latiolais had been using employee payroll tax trust fund money to
pay creditors rather than the IRS and had been writing checks but
not releasing them. 33
the unpaid taxes. 34
That was the first time Arriondo learned of
On the same day,
Dawson told Arriondo that
American Steel did not have enough money to pay the taxes owed to
the IRS. 35
Latiolais had lied to Arriondo about American Steel's
31
See Arriondo Deposition, Exhibit 14 to Motion for Summary
Judgment, Docket Entry No. 14-16, p. 11:41, p. 16:62, p. 15:59, pp.
28:112-29:113.
See id.; see also Arriondo Declaration, Exhibit B to
Plaintiff's Response, Docket Entry No. 17-3, p. 2 ~~ 11-15;
Plaintiff's Response, Docket Entry No. 18, p. 9 ~ 15.
32
33
See Arriondo Deposition, Exhibit 14 to Motion for Summary
Judgment, Docket Entry No. 14-16, p. 4:15; Arriondo Declaration,
Exhibit B to Plaintiff's Response, Docket Entry No. 17-3, p. 2
~~ 11, 14, 15.
34
See Arriondo Interrogatory Responses, Exhibit 3 to Motion for
Summary Judgment, Docket Entry No. 14-5, p. 1 Interrogatory 2. See
also Arriondo Deposition, Exhibit 14 to Motion for Summary
Judgment, Docket Entry No. 14-16, p. 9:36, p. 10:38. At the time,
American Steel had around 100 employees.
Id. at 5:20-6:21.
35
See Arriondo Declaration, Exhibit B to Plaintiff's Response,
(continued ... )
-9-
finances
and
ceased paying
tax
withholdings
and
child-support
withholdings while assuring Arriondo that the company had enough
money to pay employees. 36
Latiolais had instructed her employees
not to pay federal withholding taxes to the IRS. 37
When he learned of the unpaid payroll taxes, Arriondo began
shutting down the company and laying off employees. 38
Arriondo met
with a bankruptcy attorney approximately one week after learning of
the
unpaid
taxes. 39
The
bankruptcy attorney
told Arriondo
to
complete the shutdown of the company and to gather the necessary
35
( • • • continued)
Docket Entry No. 17-3, p. 2
36
See id.
~~
~
15
11-15.
37
See Affidavit of Patricia Bailey, Exhibit D to Plaintiff's
Response, Docket Entry No. 17-5, ~~ 2-3 ("During 2008 through April
of 2009, I worked as an Accounting Administrative Assistant at
[American Steel] under the supervision of [Latiolais], CPA.
Ms.
Latiolais was the Director of Finance, overseeing all of the
financial, accounting, and payments for American Steel.
Donna
Latiolais had full-decision making ability on what payments were
issued by the company to all vendors and institutions. During the
time I worked with Donna she specifically instructed us not to pay
federal withholding taxes to the IRS. I had no knowledge that Ms.
Latiolais had concealed the
non-payment of this tax obligation
from the company's management.") ; Affidavit of Lori LoPresti,
Exhibit E to Plaintiff's Response, Docket Entry No. 17-6 (same).
See Plaintiff's Response, Docket Entry No. 18, p. 7 ~ 11;
Arriondo Declaration, Exhibit B to Plaintiff's Response, Docket
Entry No. 17-3, pp. 2-3 ~~ 15-20.
38
39
Arriondo Declaration,
Docket Entry No. 17-3, p. 3
Exhibit B to
~
19.
-10-
Plaintiff's Response,
information for bankruptcy. 40
protection on June 5,
American Steel filed for bankruptcy
2009,
eighteen days after Dawson informed
Arriondo of the unpaid taxes. 41
The
United
States
payments and checks
asserts
that
Arriondo
approved
other
to employees and other creditors after he
learned of the unpaid taxes. 42
Arriondo received compensation from
American Steel after he learned of the unpaid taxes because he
continued to perform necessary functions to prepare the company for
bankruptcy
on
the
advice
of
the
bankruptcy
attorney. 43
The
bankruptcy attorney told him he was entitled to be paid for his
services in shutting down the company because he was not an owner. 44
4oid.
Arriondo Deposition, Exhibit 14 to Motion for Summary
Judgment,
Docket Entry No.
14-16, p. 16:64-17:65; Arriondo
Declaration, Exhibit B to Plaintiff's Response, Docket Entry No.
17-3 p. 3 ~~ 18-20.
41
42
See Motion for Summary Judgment,
12-13 ~ 27.
Docket Entry No.
14, pp.
43
See Arriondo Interrogatory Responses, Exhibit 3 to Motion for
Summary Judgment, Docket Entry No. 14-5, p. 4 Interrogatory 9. See
also Arriondo Declaration, Exhibit B to Plaintiff's Response,
Docket Entry No. 17-3, pp. 2-3 ~~ 15-20; Arriondo Deposition,
Exhibit 14 to Motion for Summary Judgment, Docket Entry No. 14-16,
p. 20:79; American Steel Building Company Voluntary Petition for
Bankruptcy in the United States Bankruptcy Court, Southern District
of Texas, Exhibit 6 to Motion for Summary Judgment, Docket Entry
No. 14-8.
See Arriondo Declaration, Exhibit B to Plaintiff's Response,
Docket Entry No. 17-3, p. 3 ~ 19. Arriondo asserts that "[a]fter
the bankruptcy filing all American Steel transactions were under
the direction of the bankruptcy trustee."
See Plaintiff's
(continued ... )
44
-11-
Arriondo admits that he had the authority to decide which
creditors to pay, including paying the employee salaries that were
paid after he learned of the unpaid taxes. 45
he
approved
payments
and
checks
to
Arriondo admits that
"employees
and
government
entities of American Steel" after he knew American Steel had unpaid
payroll taxes. 46
Two payroll payments were made after Arriondo
44
( • • • continued)
Response, Docket Entry No. 18, p. 5 ~ 2 (citing generally Arriondo
Declaration and Dawson Declaration) ; see Arriondo Declaration,
Exhibit B to Plaintiff's Response, Docket Entry No. 17-3, p. 3 ~ 20
("The company filed for bankruptcy on June 5, 2009, 18 days after
the deceit of Ms. Latiolais was known to me.
I continued
assisting the Trustee for a few weeks.").
See Plaintiff's Response, Docket Entry No. 18, p. 10 ~ 18;
Arriondo Deposition, Exhibit 14 to Motion for Summary Judgment,
Docket Entry No. 14-16, p. 9:36 ("Q: You would agree that you wrote
checks, though, even after you found out the taxes were owed? A:
When I found out that the taxes were owed, that was May 18th. On 65 we filed for bankruptcy, so... Q: But in the interim after May
18th, you would agree that there were checks written that you
signed and payments made to other creditors that were made even
though the taxes were still owed; is that a fair statement?
A:
Yes, but if you look at the statement from 6-1 to 6-30, there's
little to no activity on that account."), p. 15:58-59, p.
20:79-22:86 ("A:
Because I believe that I do have two
payrolls because it was -- as I said before, there were two more
payrolls after the bankruptcy, after we found out about this to
Steve and myself, but there was only one payroll to the company
because, you know, we closed down. Q: Well, these two are prior to
the bankruptcy, correct? The 5-22 and 5-29? A: Yeah, true, you're
right. You're right."); see also Arriondo Declaration, Exhibit B
to Plaintiff's Response, Docket Entry No. 17-3, pp. 2-4 ~~ 15-25.
45
See Plaintiff's Response, Docket Entry No. 18, p. 10 ~ 18.
Arriondo contends that as a result of his actions, the Department
of
Treasury
received
$107,571.00
from
the
liquidation,
substantially more than it would have had Arriondo not assisted the
bankruptcy trustee.
Id. ~ 16; In re: American Steel Building
Company, Chapter 7 Trustee's Final Account and Distribution Report
Certification That the Estate Has Been Fully Administered and
(continued ... )
46
-12-
learned of the unpaid taxes (all taxes were paid on these payroll
disbursements), and he and Steve Dawson remained on payroll until
the end of June. 47
Weekly employees were paid one week in arrears
on the following Friday.
They were paid on May 22nd for work that
had previously been performed. 48
The final payroll was on May 29,
2009, but many of those checks bounced. 49
Arriondo denies that he decided to pay other creditors before
the IRS. 50
The United States relies on a sampling of cancelled
46
( • • • continued)
Application to Be Discharged (TDR),
Response, Docket Entry No. 17-9.
Exhibit
I
to
Plaintiff's
47
See Arriondo Interrogatory Responses, Exhibit 3 to Motion for
Summary Judgment, Docket Entry No. 14-5, p. 4 Interrogatory 9;
Arriondo Deposition, p. 9:36, p. 15:58-59, p. 20:79-22:86.
See
also American Steel Payroll Register, Exhibit 10 to Motion for
Summary Judgment, Docket Entry No. 14-12.
48
See Arriondo Declaration, Exhibit B to Plaintiff's Response,
Docket Entry No. 17-3, pp. 2-3 ~ 17; Arriondo Deposition, Exhibit
14 to Motion for Summary Judgment, Docket Entry No. 14-16, p.
15:57, pp. 23:90-24:94; American Steel Payroll Register, Exhibit 10
to Motion for Summary Judgment, Docket Entry No. 14-12.
49
See Arriondo Deposition, Exhibit 14 to Motion for Summary
Judgment,
Docket Entry No.
14-16, p.
23:90-24:94; Arriondo
Declaration, Docket Entry No. 17-3, p. 3 ~ 18 ("Payment for the
work performed the week beginning May 18, 2009 was May 29, 2009. ") .
This was for "work performed by employees during the shutdown
process." See Plaintiff's Response,
Docket Entry No. 18, p. 11
~ 18.
50
"At no time did I authorize or direct payments to creditors
ahead of the IRS." Arriondo Declaration, Exhibit B to Plaintiff's
Response, Docket Entry No. 17-3, p. 3 ~ 24.
-13-
checks written after the period in question,
Check Register for 2008 and 2009,
and the bankruptcy filings.
53
52
51
American Steel's A/P
Arriondo's deposition testimony,
Specifically,
the United States
points to a $30,000 payment to First Steel Source LLC on May 27,
2009, a $26,355 payment to North Shore Supply Company on May 28,
2009,
and $7,500 in two June 2009 payments to American Steel's
bankruptcy counsel. 54
Arriondo acknowledges that the first
payments appear on the bankruptcy schedule,
two
but argues that the
schedule contains mistakes because these payments are not reflected
51
Exhibit 8 to Motion for Summary Judgment, Docket Entry No.
14-10, p. 1 (Pay to: TX Child Support SDU, dated 5/22/2009); p. 2
(Pay to: Texas CDSU, dated 5/22/2009); p. 3 (Pay to: CDR
Transportation Services, dated 5/29/2009); p. 4 (Pay to: E & A
Hotshots,
dated 5/18/2009); p.
5
(Pay to:
Texas Board of
Professional Engineers, dated 5/22/2009).
52
See Exhibit 9 to Motion for Summary Judgment, Docket Entry
No. 11, pp. 2, 14, 16, 22, 32-33, 39, 49, 57, 60, 63-66, 73, 76-77,
79-80.
53
See Motion for Summary Judgment, Docket Entry No. 14, p. 10
18 (citing Arriondo Deposition, Exhibit 14 to Motion for Summary
Judgment, Docket Entry No. 14-16, p. 9:36, p. 15:58-59 ("I don't
know how many creditors were paid but if the payments - payments
were issued, it was very -- very minimum because we had - at that
time we had very little money also.
So we did not continue - our
operations really literally came to a halt the moment I found
out.");
pp.
20:79-22:86
(the attorney received a
retainer
authorized by the company and discussing the payments listed on the
bankruptcy schedule) .
See also American Steel Building Company
Voluntary Petition for Bankruptcy in the United States Bankruptcy
Court, Southern District of Texas, Exhibit 6 to Motion for Summary
Judgment, Docket Entry No. 14-8, pp. 65-81.
~
54
~
See Motion for Summary Judgment, Docket Entry No. 14, p. 13
27.
-14-
on the company's bank statements for the month. 55
He also disputes
that he authorized payments to American Steel's bankruptcy counsel
in June of 2009. 56
Arriondo and Dawson stated that the company made
a $9,000 payment deposit for new steel in an attempt to complete a
large order to raise money for the taxes, but Arriondo asserts that
See Plaintiff's Response, Docket Entry No. 18, p. 13 ~ 27;
Arriondo Declaration, Exhibit B to Plaintiff's Response, Docket
Entry No. 17-3, p. 3 ~ 23 ("The Company did not make [these
payments] .
The Bankruptcy Statement of Financial Affairs listed
them, but this was inaccurate. The checks did not clear the bank
account as shown on Exhibit G.
By this time, the Company was
already shut down and I was getting together information for the
bankruptcy filing. I was not authorizing payments to creditors.") .
Plaintiff's Response cites Exhibit G, Docket Entry No. 17, which is
the Form 941 for Fourth Quarter 2008. Exhibit K, Docket Entry No.
17-11, is American Steel's Bank Statement from May 2009. The bank
statement shows an insufficient funds fee charged for Check No.
101764 on May 27th, and an insufficient funds fee charged for Check
No. 101671 on May 28, 2009. Id. at 8. Arriondo argues that these
alleged payments may not be considered anyway because the
bankruptcy schedule is hearsay and they cannot be put in an
admissible form. See Plaintiff's Response, Docket Entry No. 18, p.
13 ~ 27 (citing Fed. R. Civ. P. 56(d)).
He does not address the
check register or cancelled checks.
However, the court does not
rely on the information in the bankruptcy schedule in reaching its
conclusion.
55
See Plaintiff's Response, Docket Entry No. 18, p. 13 ~ 27;
Arriondo Declaration, Exhibit B to Plaintiff's Response, Docket
Entry No. 17-3, p. 3 ~~ 19 ("[The bankruptcy attorney] advised me
that payment for his services of $7,500.00 would be approved by the
court and trustee."), 23, 24.
"Arriondo denies he made numerous
payments to himself after learning of the unpaid taxes, including
salary payments. Plaintiff's Response, Docket Entry No. 18, p. 13
~ 27.
Earlier in his Response, however, and in his declaration,
deposition, and answers to interrogatories, he admits that he
received salary payments after learning of the unpaid taxes.
He
also admitted that he received insurance reimbursements and car
allowances along with the salary payments as part of his
compensation package after May 18, 2009. See Arriondo Deposition,
Exhibit 14 to Motion for Summary Judgment, Docket Entry No. 14-16,
p. 21:84-22:86.
56
-15-
this was not a payment to a creditor. 57
Rather than fulfilling the
order, the supplier applied the $9,000 to American Steel's past due
payments. 58
Discussing his actions after he discovered the unpaid
payroll taxes, Arriondo testified:
Q:
So was the hope then to get money in to be able to
use to pay the IRS?
A: To pay that debt. That is -- that became in the short
period of time before when I found out till the very end
when we filed for bankruptcy, that became the number one
concern. Let's see if we can get money here, something,
a loan or whatever so that we can pay this off. 59
However, Arriondo denies that he kept American Steel operating even
after he learned of the unpaid taxes in an attempt to generate new
revenue with which to pay taxes. 60
Arriondo also denies that he
See Plaintiff's Response, Docket Entry No. 18, p. 14 ~ 27;
Arriondo Deposition, Exhibit 14 to Motion for Summary Judgment,
Docket Entry No. 14-16, pp. 22:87-88; Arriondo Declaration, Docket
Entry No. 17-3, p. 2 ~ 16.
57
58
See Dawson Declaration, Exhibit C to Plaintiff's Response,
Docket Entry No. 17-4, p. 1 ~ 7 ("American Steel had a potential
sale that could be consummated if sufficient steel could be
acquired. Mr. Arriondo and I discussed making a sale and using the
proceeds to reduce the amount due the IRS.
We thought the IRS
would then accept a payment plan for the remainder. A deposit was
made to a supplier in the amount of $9,000.00 that was for new
steel.
Unfortunately the supplier offset the deposit to past due
invoices and did not deliver any steel.").
59
Arriondo Deposition, Exhibit 14 to Motion for Summary
Judgment, Docket Entry No. 14-16, p. 23:89.
See also id. at
20:79-24:93 (discussing the bankruptcy schedules).
See Plaintiff's Response, Docket Entry No. 18, p. 13 ~ 27
(citing Arriondo Declaration, Exhibit B to Plaintiff's Response,
Docket Entry No. 17-3).
60
-16-
kept the company operating by paying other creditors first, hoping
that there would be enough money to pay the taxes in the future.
61
Arriondo admits that American Steel's bank statements for the
period in question and subsequent months (prior to the bankruptcy
filing)
show that the company received hundreds of thousands of
dollars with which American Steel could have paid payroll taxes. 62
Arriondo denies,
however,
that the statements show that American
Steel received hundreds of thousands of dollars during April and
May of 2009 63 and denies that it had enough to pay the taxes for the
period in question after May 18, 2009. 64
61
Arriondo asserts that if
See
id.
(citing Arriondo Declaration,
Plaintiff's Response, Docket Entry No. 17-3).
Exhibit
B
to
62
See Motion for Summary Judgment, Docket Entry No. 14, p. 11
21; Plaintiff's Response, Docket Entry No. 18, p. 11 ~ 21;
American Steel Building Inc. Account Activity Summary from October
of 2008 thru May of 2009, Exhibit 11 to Motion for Summary
Judgment, Docket Entry No. 14-13.
~
63
See American Steel Building Inc. Account Activity Summary
from October of 2008 thru May of 2009, Exhibit 11 to Motion for
Summary Judgment, Docket Entry No. 14-13, pp. 1-15 (account
activity from April and May of 2009) .
See Plaintiff's Response, Docket Entry No. 18, p. 11 ~ 21;
Motion for Summary Judgment, Docket Entry No. 14, p. 11 ~ 21. See
also Arriondo Deposition,
Exhibit 14 to Motion for Summary
Judgment, Docket Entry No. 14-16, p. 9:35 {"Q:
[T]his statement
for this month indicates that American Steel received deposits in
the amount of 345,000 for the month of May; do you see that? A:
I see that. Q: And payments were made or withdrawals were made in
the amount of 350,000, roughly, 351,000; do you see that? A: Yes,
I do.
Q:
Do you know what that money was used for?
A:
Not
exactly.
Only to pay.
I'm sure we had an incredible amount of
bills to pay and steel to buy and same things that we've always
paid for.")-10:40, p. 11:42-43.
64
-17-
he had known of the unpaid taxes before May 18, 2009, he would have
shut the company down earlier. 65
The IRS assessed American Steel's unpaid taxes for the period
in question against Arriondo and is seeking to recover the trust
fund penalty under I.R.C.
§
6672. 66
Arriondo filed his Complaint
on September 23, 2014. 67
He seeks to recover $100.00 paid to the
IRS and attorneys fees,
to be found not liable as a responsible
person under I.R.C.
§
6672, and to recover administrative costs and
litigation costs pursuant to 26 U.S.C.
§
States filed an answer and counterclaim,
7430(a). 68
The United
seeking an order that
Arriondo is not entitled to any refund or other relief,
and is
indebted to the United States in the amount of $365,537.20 plus
interest. 69
The United States filed its Motion for Summary Judgment
on April 28, 2016, after a period of discovery.
65
See Arriondo Declaration, Exhibit B to Plaintiff's Response,
Docket Entry No. 17-3, p. 3 ~ 20.
66
See IRS Forms 4340 for the period ending December 31, 2008,
and the period ending March 31, 2009, Exhibit 13 to Motion for
Summary Judgment, Docket Entry No. 14-15; Declaration Under 28
U.S.C. § 1746 of Brett A. Crow and attached schedule of Unpaid Tax
Liability for Arriondo, Exhibit 15 to Motion for Summary Judgment,
Docket Entry No. 14-17.
67
Complaint, Docket Entry No. 1.
68
Id. at 4.
69
See United States of America's Answer to Plaintiff's Original
Complaint and Counterclaim, Docket Entry No. 8, pp. 2-4.
-18-
II.
Standard of Review
Summary judgment is appropriate if the movant establishes that
there is no genuine dispute about any material fact and the movant
is entitled to judgment as a matter of law.
Fed. R. Civ. P. 56(a).
Disputes about material facts are genuine "if the evidence is such
that a reasonable jury could return a verdict for the nonmoving
party."
Anderson v.
Liberty Lobby,
Inc.,
106 S.
Ct.
2505,
2510
(1986) .
The moving party is entitled to judgment as a matter of
law if "the nonmoving party has failed to make a sufficient showing
on an essential element of her case with respect to which she has
the burden of proof."
Celotex Corp. v. Catrett, 106 S. Ct. 2548,
2552 (1986).
A party moving for summary judgment "must
'demonstrate the
absence of a genuine issue of material fact,' but need not negate
the elements of the nonmovant' s case."
37 F.3d 1069, 1075 (5th Cir. 1994)
Celotex, 106 S. Ct. at 2553).
Little v. Liquid Air Corp.,
(en bane)
(per curiam)
(quoting
"If the moving party fails to meet
this initial burden, the motion must be denied, regardless of the
nonmovant's response."
this
burden,
Id.
IC however,
the moving party meets
"the nonmovant must go beyond the pleadings"
and
produce evidence that specific facts exist over which there is a
genuine
2553-54)
issue
for
trial.
Id.
(citing Celotex,
106
S.
Ct.
at
The nonmovant "must do more than simply show that there
is some metaphysical doubt as to the material facts."
-19-
Matsushita
Electric Industrial Co.,
Ltd. v.
Zenith Radio Corp.,
106 S.
Ct.
1348, 1356 (1986).
"In
order
to
avoid
summary
judgment,
the
nonmovant
must
identify specific facts within the record that demonstrate the
CQ,
Inc. v. TXU
(5th Cir. 2009).
"The party
existence of a genuine issue of material fact."
Mining Co., L.P.,
565 F.3d 268, 273
must also articulate the precise manner in which the submitted or
Id.
identified evidence supports his or her claim."
(internal
"When evidence exists in
quotation marks and citation omitted) .
the summary judgment record but the nonmovant fails even to refer
to it in the response to the motion for summary judgment,
evidence is not properly before the district court."
Id.
that
(same).
"[T]he court must draw all reasonable inferences in favor of
the nonmoving party, and it may not make credibility determinations
Reeves v.
or weigh the evidence."
Inc.,
120 S. Ct.
2097,
2110
Sanderson Plumbing Products,
(2000).
The court resolves factual
controversies in favor of the nonmovant, but only "when there is an
actual
controversy,
that
is,
when both parties
evidence of contradictory facts."
III.
A.
26 U.S.C.
§
have
submitted
Little, 37 F.3d at 1075.
Analysis
6672 - Trust Fund Recovery Penalty
Employers are required to withhold their employees' share of
federal social security and income taxes from the employees' wages.
See 26 U.S. C.
§§
3102 (a) , 3402 (a) .
-20-
The employer holds these "trust
fund taxes" in trust for the benefit of the United States.
Slodov v. United States,
U.S.C.
§
98 S. Ct.
7501(a)); Barnett v.
1778,
1783
(1978)
See
(citing 26
Internal Revenue Service,
988 F.2d
1449, 1453 (5th Cir. 1993); Howard v. United States, 711 F.2d 729,
733 (5th Cir. 1983).
To ensure that the taxes are remitted to the
United States, 26 U.S.C.
§
6672(a) imposes a penalty equal to the
entire amount of the unpaid taxes:
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 penal ties 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 . .
"Liability under
§
6672 thus is composed of two elements:
(1) that
the taxpayer was a 'responsible person,' and (2) that the taxpayer
willfully failed to collect, account for, or pay over such taxes."
Conway
v.
United
States,
647
F.3d
228,
232
(5th
Cir.
2011)
(citation omitted); Barnett, 929 F.2d at 1452.
B.
Responsible Person
The
term
"person"
includes
"an
officer
or
employee
of
a
corporation, or a member or employee of a partnership who as such
officer, employee, or member is under a duty to perform the act in
respect of which the violation occurs."
26 U.S.C.
§
6671(b).
The
statute imposes liability on any person who is required to collect,
truthfully
account
for,
or
pay
-21-
over
the
withheld
taxes
and
willfully fails to do so.
See Barnett, 988 F.2d at 1453; Turnbull
v. United States, 929 F.2d 173, 178 (5th Cir. 1991); Wood v. United
States, 808 F.2d 411, 414
(5th Cir. 1987).
Thus,
involvement in
either collecting, truthfully accounting for, or paying over taxes
is
sufficient;
liability is not
limited to those persons
position to perform all three of the
6672 enumerated duties.
§
in a
See
Slodov, 98 S. Ct. at 1787; Verret v. United States, 542 F. Supp. 2d
526, 533 (E.D. Tex. 2008).
The United States argues that Arriondo
was a responsible person for the period in question, and Arriondo
does not dispute that he was a responsible person in his response. 70
The Fifth Circuit "takes a broad view of who is a responsible
person under
§
6672."
(5th Cir. 1999)
1454,
1456
("We
Logal v. United States, 195 F.3d 229, 232
(citation omitted); see also Barnett, 988 F.2d at
first
responsibility are
observe
relatively
that
few
cases
and
far
not
finding
between.");
§
6672
Raba v.
United States, 977 F.2d 941, 943 (5th Cir. 1992); Gustin v. United
States,
876 F.2d 485,
491
(5th Cir.
1989).
matter of status, duty, power and authority.
(citing Howard,
711 F. 2d at 734) .
70
Responsibility is a
Wood,
808 F.2d 415
It is not necessary that an
See Plaintiff's Response, Docket Entry No. 18, p. 5 (His
"statement of issues to be decided by the court" identifies a
single issue: "Whether Mr. Arriondo willfully failed to pay over
the collected payroll taxes withheld from the wages of American
Steel's employees for the fourth quarter of 2008 and the first
quarter of 2009 as provided by 26 U.S.C. Section 6672(a) even
though he did not have knowledge of the failure to pay until May
18, 2009, after the quarterly tax returns were filed?")
-22-
individual have the final or exclusive word as to which creditors
should be paid in order to be subject to liability under
Verret,
542 F.
Supp.
2d at 534
§
6672.
(citing United States v. Bogard,
Civ. Action No. 4-88-492-K, 1991 WL 101535, at *4 (N.D. Tex. Apr.
19, 1991).
In fact, one need not even have knowledge that he has
such authority.
Id.; Barnett, 988 F.2d at 1454 (" [R]esponsibility
does not require knowledge that one has that duty and authority.") .
Recognized
indicia
of
responsible
person
status
include:
"whether such a person: (i) is an officer or member of the board of
directors;
(ii) owns a substantial amount of stock in the company;
(iii) manages the day-to-day operations of the business;
the authority to hire or fire employees;
the
disbursement
of
funds
and
payment
(v) makes decisions as to
of
creditors;
possesses the authority to sign company checks."
at 1455 (citations omitted).
(iv) has
and
(vi)
Barnett, 988 F.2d
No single factor is dispositive.
Id.
All of these factors apply to Arriondo to some degree except the
second.
The statute applies to any responsible person, not just the
person most responsible for paying taxes.
Barnett,
988 F.2d at
1455 (citing Howard, 711 F.2d at 737); see also Neckles v. United
States, 579 F.2d 938, 940 (5th Cir. 1978)
("[T]he fact that others
may also have had the duty and authority to remit the taxes does
not relieve the appellant of section 6672 liability.").
Thus, the
fact that Latiolais had primary responsibility for paying taxes
-23-
does not absolve Arriondo from liability.
See Barnett, 988 F.2d at
1454-55 ("[A] person may be a responsible person for purposes of
the statute even though he does not know that withholding taxes
have not been paid,
person
merely
Moreover,
by
and he does not cease to be a responsible
delegating
Barnett,
responsibility
to
others.
there usually are [] multiple responsible persons
in any company.
as
the
The crucial inquiry is whether a party such
by virtue
of
his
position
could have
had
'substantial' input into such decisions, had he wished to exert his
authority.")
The court thus concludes that
(citations omitted) .
Arriondo was a
"responsible person"
for the time he worked at
American Steel.
C.
Willfulness
A responsible person is
only liable under
§
6672
if
his
failure to collect or account for or pay over payroll taxes was
"willful."
the
See 26 U.S.C.
Government
offers
§
an
6672; Wood, 808 F.2d at 415.
assessment
[of
penalty
"[O]nce
taxes]
into
evidence, the burden of proof is on the taxpayer to disprove his
responsible-person status or willfulness."
Barnett, 988 F.2d at
1453 (citations omitted); see also Mazo v. United States, 591 F.2d
1151, 1155 (5th Cir. 1979)
(citing Anderson v. United States, 561
F.2d 162, 165 (8th Cir. 1977); Liddon v. United States, 448 F.2d
509,
513-14
(5th Cir.
1971)).
Arriondo argues that there are
genuine issues of material fact as to whether he acted willfully
-24-
and that his actions in shutting the company down and filing for
bankruptcy were reasonable. 71
1.
Payments to Other Creditors
The United States argues that Arriondo acted willfully as a
matter of law in paying creditors other than the IRS after he knew
of the unpaid taxes:
Arriondo admitted that (i) he aware that American Steel
was facing "challenges" financially due to the economic
downturn that began in 2008, (ii) the Company "always had
a challenge" financially and "struggle[ed] with cash,"
(iii) he was aware "towards the end of '08 and certainly
in
2009
that
the
company
was
having
financial
difficulties," (iv), he knew American Steel was having
serious tax issues in April 2009 (relating to the State
of Texas levy for unpaid excise taxes), and (v) he knew
of the unpaid payroll taxes by [May 18, 2009]. Despite
this knowledge, Arriondo paid, and authorized payment to,
creditors other than the IRS (as well as payments to
American Steel's employees, including himself) after he
knew of the unpaid taxes. 72
Normally,
responsible
willfulness
person
paid
is
other
withholding taxes were due at
proved
"by
creditors
the
time
evidence
with
that
knowledge
the
that
to the United States."
71
See Plaintiff's Response, Docket Entry No. 18, pp. 14-17.
Arriondo argues that he acted reasonably after he discovered the
unpaid taxes, but does not assert a "reasonable cause" defense.
See Logal, 195 F.3d at 233 ("[A]lthough we have recognized
conceptually that a reasonable cause may militate against a finding
of willfulness, no taxpayer has yet carried that pail up the hill.
No such defense may be asserted by a responsible person who knew
that the withholding taxes were due, but who made a conscious
decision to use corporate funds to pay creditors other than the
government.") (citations and quotations omitted).
72
See Motion for Summary Judgment,
20-26.
-25-
Docket Entry No.
14, pp.
Barnett,
988
F.2d
"Willfulness under
at
§
1457
(citing
Gustin,
876
F.2d
F.2d at 1457 (citing Maze,
to
492).
6672 requires only a voluntary, conscious, and
intentional act, not a bad motive or evil intent."
492).
at
Barnett, 988
591 F.2d at 1154; Gustin,
876 F.2d at
Thus, a "considered decision not to fulfill one's obligation
pay
the
taxes
owed,
evidenced
by
payments
made
to
other
creditors in the knowledge that the taxes are due, is all that is
required to establish willfulness."
Id.
(citing Howard, 711 F.2d
at 736 (internal quotations omitted)).
Arriondo contends that Latiolais' deception prevented him from
taking action earlier and that
" [n] o payments
American Steel were made after
[he]
pay."73
However,
a
responsible
learned of
person
who
to creditors of
the
failure
learns
of
to
the
underpayment of taxes must use later-acquired unencumbered funds to
pay the taxes;
failure
to do so constitutes willfulness.
See
Barnett, 988 F.2d at 1458 (citing Maze, 591 F.2d at 1157; Turnbull,
929 F.2d at 179-80; Wood, 808 F.2d at 416; Garsky v. United States,
600 F.2d 86, 91 (7th Cir. 1979)); see also Maze, 591 F.2d at 1157
("In the
case of
individuals who are
responsible persons both
before and after withholding tax liability accrues .
. there is
a duty to use unencumbered funds acquired after the withholding
obligation becomes payable to satisfy that obligation; failure to
do so when there is knowledge of the liability .
. constitutes
73 See Plaintiff's Response, Docket Entry No. 18, p. 15.
-26-
willfulness."); Legal, 195 F.3d at 232; Lencyk v. Internal Revenue
Service, 384 F. Supp. 2d 1028, 1036 (W.D. Tex. 2005).
It is undisputed that Arriondo and Dawson agreed to attempt
one more job to earn the money to pay the taxes,
and that they
spent at least $9,000 attempting to buy steel after learning of the
unpaid
taxes .
The
Fifth
Circuit
has
"not
accepted
the
mere
reasonable expectation of sufficient funds at a later date as a
defense to a charge of willful failure to comply with the commands
of
§
6672."
Bowen v. United States, 836 F.2d 965,
968
(5th Cir.
1988); Behrman v. United States, Civ. Action No. 4:15-CV-286, 2016
WL 1392338, at *4
(E.D. Tex. April 8, 2016)
("The hope that there
will be sufficient money with which to pay the taxes in the future
is no defense." (citing Newsome v. United States, 431 F.2d 742, 746
(5th Cir. 1970)) . 74
Even if there was not enough money to fully
74
A responsible person can also be liable under § 6672 based
on use of withheld funds for other corporate purposes before the
date for the company to pay over the taxes. See Newsome, 431 F.2d
at 745-46 ("The responsible officer's actions before the due date
for payment of the withheld taxes satisfies the 'willfulness'
requirement under section 6672: when the responsible officer . . .
knows that the withheld funds are being used for other corporate
purposes, regardless of his expectation that sufficient funds will
be on hand on the due date for payment over to the government . .
However, he subjects himself to liability under 6672 when he
voluntarily and consciously 'risks' the withheld taxes in the
operation of the corporation, and subsequently the corporation is
unable to remit the withheld taxes.").
Here, although the taxes
for the period in question were already past-due, Arriondo entered
into a deal that he hoped would lead to more funds, voluntarily and
consciously risking that money in the operation of the corporation.
See id. ("One example of using withheld taxes for other corporate
purposes would be when, at any time during the quarter, the
(continued ... )
-27-
satisfy the back taxes owed to the IRS on May 18, 2009, Arriondo
allowed deposits for new steel to be paid out of what limited funds
the company had. 75
He thus used unencumbered funds to be used for
something other than the taxes after discovering the unpaid taxes. 76
Arriondo also admits that he continued to pay salaries after
learning of the
tax liability.
similar situation in Logal,
recognizing
that
paying
195
"other
The Fifth Circuit addressed a
F. 3d at
232
creditors"
(emphasis added),
includes
employee
salaries:
Between March and July 1994, after Logal knew that the
withholding taxes had not been paid, deposits totaling
over $450, 000 were made into Meridien' s accounts in
Dallas.
However, Logal used these funds to pay other
creditors, including his wages and the wages of other
employees.
These later acquired funds were not
"encumbered" under § 6672; thus Logal was required to use
them to pay the delinquent withholding taxes.
His
failure to do so makes him a willful violator of § 6672
and he cannot escape liability by shifting the blame to
others.
74
( • • • continued)
responsible officer is aware that the amount of corporate funds is
lower than the amount of taxes withheld for the quarter and allows,
or has knowledge of, the corporation's continuing to pay other
corporate creditors.").
75
Arriondo is careful to make the distinction that he did not
make a payment to a creditor, although the supplier immediately
applied the deposit to American Steel's past due invoices.
76
Arriondo contends that
reviewed and signed) contains
creditors reflected on it did
bounced due to insufficient
bankruptcy schedule is hearsay
the bankruptcy schedule (which he
mistakes because two payments to
not occur.
In fact, those checks
funds.
He also argues that the
and cannot be considered.
-28-
In United States v. Kennedy, Civ. Action No. SA-10-CV-341-XR,
2011
WL
2636096,
at
*6
(W.D.
Tex.
July
5,
2011),
addressed a situation nearly identical to Arriondo's.
the
court
There, the
government presented evidence that one plaintiff signed at least
five IRS Form 941s in 2004 showing that the taxes remained unpaid.
Id.
That plaintiff testified that he did not learn of the unpaid
taxes until 2003 or 2004, and claimed that he "did not prepare the
tax returns, and he did not review the information on the Form 941s
that Gaona presented for him to sign, because he was led to believe
that the taxes were being paid."
Id.
Granting summary judgment
for the government, the court held:
If the only evidence of Kennedy's knowledge was the
signatures on the Form 941s, there may be a dispute of
material fact as to his knowledge and therefore his
willfulness.
Kennedy also testified at his deposition,
however, that all employees continued to be paid all the
way until the termination of the company, even after he
learned about the unpaid taxes in 2003 or 2004. He also
testified that he signed payroll checks to Forero after
he knew about the unpaid taxes. Kennedy's admission that
he signed paychecks and knew that employees continued to
get paid, even after knowing about the unpaid taxes,
amounts to willfulness as a matter of law under Fifth
Circuit precedent.
Id.
(citations
omitted) .
Other decisions
also
recognize
that
choosing to pay one's own or other employee salaries can constitute
willful failure to remit trust fund taxes.
See, e.g., Turnbull,
929 F.2d at 180 ("Evidence was introduced at trial indicating that
Foster paid other creditors with knowledge that the payroll taxes
were due.
Foster testified that throughout 1981 he authorized
-29-
checks to pay other DJT expenses,
including outstanding loans,
lease obligations, and utilities.
In addition,
in December 1981,
after
knew
the
Foster
concedes
that
he
about
payroll
tax
deficiency, Foster directed Big Sky to send a payroll check to DJT
. ")
(emphasis
added)
i
Behrman,
2016
WL
1392338,
at
*4
("[Plaintiff] admitted that he authorized the payment of creditors
in lieu of the IRS after learning of the unpaid taxes.
He even
admit ted that he was paid after learning of the unpaid taxes.")
(emphasis added)
5, 2011)
i
Kennedy, 2011 WL 2636096, at *5-6 (W.D. Tex, July
("Gaona testified in his deposition that he knew that the
company was unable to pay its taxes, and he knew that the IRS had
sent a letter inquiring about the outstanding taxes.
Even with
this knowledge, Gaona continued to receive his salary, as did M.S.
Patrol's other employees.
Gaona testified that he and Kennedy
authorized these salary payments as well as rent payments
[and]
kept M.S. Patrol in business and operating for three years
after knowing about the unpaid taxes.
[This]
establishes
that Gaona willfully failed to collect and pay the taxes due to the
IRS.")
559,
(emphasis added)
565
(E.D.
Tex.
i
Sutton v. United States, 194 F. Supp. 2d
2001)
("[Plaintiff's]
deposition testimony
shows that he continued to pay employees and creditors up until
about the time the doors of the company were locked in 1993.
The
fact that he admits he was aware the withholding taxes had not been
paid
and
he
continued
to
pay
creditors
-30-
satisfies
the
first
willfulness test.")
that
Arriondo
(emphasis added) . 77
Thus,. the court concludes
acted willfully when he
paid himself
and
other
employees and used money in an attempt to purchase new steel.
Finally,
a
responsible person who
is
found
to have acted
willfully for at least one quarter is a willful actor for preceding
quarters,
even
if
he
was
unaware
of
liability in those earlier quarters.
F. 2d at
1155-56,
several
corporate
the
unpaid
For example,
officers
were
payroll
tax
in Mazo,
591
found
to
be
responsible persons, but did not learn of the unpaid taxes until
October 6,
1969.
None of the officers knew of the unpaid taxes
while they were accruing in the first three quarters of 1969.
at 1156.
Id.
However, each officer signed a check to a creditor other
than the IRS after October 6th. 78
The court found that the officers
acted willfully for each quarter, even though they were unaware of
the unpaid taxes during the quarters in which they accrued.
("The
real
issue
here
is
whether
the
officers
Id.
assessed acted
willfully in failing to discharge their duty after October 6.").
Similarly,
in Wood,
808
F. 2d at 416,
the Court held that
because Wood received notice that employment taxes were past due by
77
Arriondo argues that child support payments, administrative
payments, and employee salaries are a higher priority in bankruptcy
than IRS withholdings. See Plaintiff's Response, pp. 15-16 (citing
Bankruptcy Code § 507)
However, the payments at issue were made
after May 18, 2009, and before the company filed for bankruptcy.
78
0ne officer, Mr. Sadler, did not sign such a check. However,
Sadler also acted willfully because he actually knew the taxes were
unpaid and took no action. Mazo, 591 F.2d at 1156.
-31-
a letter from the IRS dated September 17, 1979, and conceded that
after that date he signed checks paying to creditors more than the
amount of unpaid withholding taxes, he acted willfully as to all
taxes unpaid before he received notice that taxes were past due.
See also Turnbull,
92 9 F. 2d at
18 0
(holding
that
because
the
plaintiff was a responsible person for all quarters of 1981, the
government did not have to prove that he knew about the unpaid
taxes prior to October 1981 in order to hold him liable for the
willful
failure
to pay taxes
for
all
four
quarters
of
1981) .
Therefore, Arriondo can be found to have acted willfully, even if
Latiolais was actively concealing the unpaid taxes, Arriondo did
not discover the non-payment until after the period in question,
and all payroll taxes had been properly paid in the past.
of
this
authority,
the
court
concludes
that
In light
Arriondo
acted
willfully.
2.
Reckless Disregard
The
United
States
reckless disregard.
disregards a
also
argues
that
Arriondo
A person acts willfully if he
known or obvious
remitted to the government.
1136, 1140 (5th Cir. 1979)
i
risk
that
the
acted
with
recklessly
taxes may not be
See Brown v. United States, 591 F.2d
Gustin,
876 F.2d at 492.
The United
States argues that it was reckless of Arriondo, as CEO, president,
and treasurer of the company, to do nothing to ensure the taxes for
-32-
the period in question were eventually paid despite his knowledge
that the company was in dire financial straits. 79
"Mere negligence does not establish willfulness."
United States,
Gustin,
383
F.
App'x 483,
876 F.2d at 492).
488
However,
(5th Cir.
2010)
Payne v.
(citing
"[t]his Court has also held
that reckless disregard includes a 'fail[ure] to investigate or to
correct mismanagement after being notified that withholding taxes
have not been duly remitted.'"
v.
United
States,
Civ.
Id.
Action
(citations omitted).
No.
3:13-CV-4399-M-BF,
In Troost
2015
WL
5258812, at *3 (N.D. Tex. Aug. 12, 2015), report and recommendation
accepted, Civ. Action No. 3:13-CV-4399-M-BF, 2015 WL 5279096 (N.D.
Tex. Sept. 9, 2015), the government argued that Mrs. Troost acted
willfully because
[Mrs.] Troost also demonstrated a reckless disregard
because she should have known that there was a risk that
[the company's] payroll taxes may not paid for the first
quarter of 2009 through the fourth quarter of 2012 due to
the company's financial problems during that time frame.
The government points to Mr.
Troost's deposition
transcript wherein he states that he informed Mrs. Troost
prior to 2009 that [] the company was behind on payments
to vendors and its payroll taxes.
Further,
the
government points to Mr. Troost's statements that when
[the company] needed money, he would inform his wife and
that the Troosts contributed money to the company to keep
it operating.
In addition, the government points to a
promissory note showing that Mrs. Troost loaned [the
company] $169,000.00 between 2006 and 2009.
(record
citations omitted) .
79
Motion for Summary Judgment, Docket Entry No. 14, pp. 21-23.
-33-
Because
the
government
presented
sufficient
summary
judgment
evidence in support of its argument that the Troosts "willfully
and/or recklessly"
failed
to
failed to pay payroll taxes and the Troosts
controvert
that
judgment for the government.
evidence,
the
court
granted summary
Id. at *4.
Similarly, Arriondo knew that the company was (and had been)
struggling financially,
that Latiolais had failed to pay state
excise taxes in 2008, and that Arriondo had needed to advance the
company
$20, 000
to
cover employee
payroll
in early 2009.
He
testified that Latiolais told him that she had not paid the state
taxes due to lack of funds.
Despite this knowledge, particularly
of Latiolais' failure to pay the state taxes, he did not review or
inquire into the status of other tax payments.
Thus,
Arriondo
failed to correct mismanagement after being notified that some
taxes had not been duly remitted.
Although the unpaid taxes were
not federal employment taxes, this behavior is similarly reckless.
See Verret, 542 F. Supp. 2d at 539 ("If a responsible officer knows
the corporation has recently incurred a payroll tax delinquency and
is aware of the deteriorating affairs of the corporation, he runs
the risk of being held personally liable for the unpaid withheld
payroll taxes if he fails to take steps to ascertain the state of
the payroll tax liabilities or to institute effective financial
controls to guard against nonpayment.")
-34-
(citation omitted).
IV.
Conclusions and Order
Viewing the evidence submitted in the light most favorable to
Arriondo and drawing reasonable inferences in his favor, the court
concludes that Arriondo has failed to raise a genuine issue of
material fact as to his status as a responsible person who acted
(
willfully.
Against
GRANTED.
United States of America's Motion for Summary Judgment
W.
Raul
Arriondo
(Docket
Entry
No.
14)
is
therefore
The court ADJUDGES and DECREES that Arriondo is indebted
to the United States in the amount of $359,567.73 as of April 29,
2016, plus pre-judgment and post-judgment interest from April 29,
2016.
The United States is ordered to provide a calculation of prejudgment interest to Arriondo's counsel by July 29, 2016.
If the
parties cannot agree on the amount of pre-judgment interest,
the
court will conduct a hearing on August 5, 2016, at 3:00 p.m.
If
the parties agree on the amount
of pre-judgment
parties will submit a proposed Final Judgment,
interest,
the
agreed on as to
form, including the agreed amount of pre-judgment interest.
SIGNED at Houston, Texas, on this 22nd day of July, 2016.
UNITED STATES DISTRICT JUDGE
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