Metropolitan Transit Authority of Harris County, Texas v. United States of America (IRS) et al

Filing 14

ORDER GRANTING 12 MOTION for Summary Judgment and Memorandum in Support. The USA is ORDERED to submit a proposed final judgment within ten (10) days of the date of this order.(Signed by Judge Gray H. Miller) Parties notified.(rkonieczny, 4)

United States District Court
Southern District of Texas

ENTERED
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
METROPOLITAN TRANSIT AUTHORITY OF
HARRIS COUNTY, TEXAS,

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Plaintiff,
v.
UNITED STATES OF AMERICA, et al.,
Defendants.

January 11, 2016
David J. Bradley, Clerk

CIVIL ACTION H-15-660

ORDER
Pending before the court is a motion for summary judgment filed by defendant United States
of America (the “USA”). Dkt. 12. The USA moves for summary judgment against plaintiff
Metropolitan Transit Authority of Harris County, Texas (“METRO”) and defendant Powerhouse
Battery, Inc. Id. Neither METRO nor Powerhouse Battery, Inc., responded to the USA’s motion for
summary judgment. Having considered the motion, exhibits, and applicable law, the court is of the
opinion that the motion should be GRANTED.
I. BACKGROUND
This is an interpleader case originally filed by METRO in Texas state court. Dkt. 1-1. It
stems from a contract between METRO and defendant Clark Battery Company entered into on April
2, 2004. Dkt. 1-2, Ex. E. Under the contract, Clark Battery Company agreed to provide type 31
storage batteries for transit vehicles to METRO. Id. CBC Battery, a company with the same address
as Clark Battery Company, invoiced METRO for batteries several times in 2005. Dkt. 1-2, Exs.

A–D.1 Defendant Powerhouse Battery, Inc., d/b/a CBC Battery contends that METRO owes it
$51,596.90 (the “Disputed Funds”) for batteries provided under the contract. Dkt. 1-2. On May 16,
2005, the IRS served METRO with a notice of levy on any funds METRO owed to Clark Battery
Company or CMAC, Inc., indicating that the business or businesses owed $114,840.92 in unpaid
taxes. Dkt. 1-1 & Ex. B. The notice of levy indicates that CMAC, Inc., and Clark Battery Company
both have the same address. Id. On June 3, 2005, CMAC, Inc., filed a petition under Chapter 7 of
the United States Bankruptcy Code. Id. On September 30, 2010, the bankruptcy trustee abandoned
the rights to the Disputed Funds pursuant to 11 U.S.C. § 554(a) because it was “burdensome to the
estate not to abandon the interest in the Property.” Dkt. 1-1, Ex. E. The bankruptcy was eventually
closed on May 16, 2013. Dkt. 1-1, Ex. F.
In the meantime, CBC Battery Company and Clark Battery Company’s counsel sent a
demand to METRO to pay part of the funds owed under the contract to CBC Battery Company and
part to the IRS, noting that part of the funds were due before the levy was filed. Id. & Ex. D.
METRO did not do so, and on November 23, 2011, CMAC, Inc., filed suit against METRO. Dkt. 11. On May 5, 2013, County Civil Court at Law Number 2, Harris, County, Texas, Judge Chan
entered judgment for Powerhouse Battery, Inc., d/b/a CBC Battery against METRO for $51,596.80.2
Id. & Ex. G. The order indicates that the claims made by CMAC, Inc., were denied. Dkt. 1-1,

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While the invoices do not specifically state “type 31 storage batteries,” the one detailed
invoice provided indicates the part number is “EXIDE HC-31D Battery 12-Volt, BCI Group 31,
Maintenance free.” Dkt. 1-2, Ex. A-1. The other invoices only specify they are for 12-volt batteries,
without any other detail. See Dkt. 1-2, Exs. A—D. The court presumes that these batteries are the
type 31 storage batteries to which the contract between METRO and Clark Battery Company refers.
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Interestingly, the caption of the order does not indicate that Powerhouse Battery, Inc., d/b/a
CBC Battery was a party to the lawsuit. Id.
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Ex. G. It does not appear that the USA was a party to or advised of this lawsuit; neither the IRS nor
the USA is mentioned in the order disposing of the case. See id.
METRO filed this interpleader action in the 152nd District Court of Harris County, Texas,
on January 21, 2015 (Dkt. 1, Ex. C) due to the competing claims for the Disputed Funds. Dkt. 1-1.
The original petition is against the Internal Revenue Service (the “IRS”); CMAC, Inc.; Powerhouse
Battery, Inc., d/b/a/ CBC Battery; Clark Battery Company; and CBC, Inc., d/b/a Powerhouse Battery,
all as potential claimants to the Disputed Funds that METRO owes defendant Clark Battery
Company for supplying METRO with batteries. Id. METRO disclaims any interest in the Disputed
Funds and seeks to be discharged from any and all liability to the defendants with respect to the
Disputed Funds. Id. METRO also seeks reasonable and necessary attorneys’ fees and costs
associated with bringing the interpleader action. Id.
On February 27, 2015, Powerhouse Battery, Inc., d/b/a CBC Battery filed an answer. Dkt. 12. Powerhouse Battery, Inc., d/b/a CBC Battery asserts that it provided the batteries to METRO
pursuant to the contract between CBC Battery and METRO and that METRO refused to pay. Id.
Powerhouse Battery, Inc., d/b/a CBC Battery states that METRO has not offered any evidence that
the IRS has a lien on payments of funds owed to CBC Battery or that CBC Battery is not the party
entitled to receive compensation under the contract. Id. Powerhouse Battery, Inc., d/b/a CBC
Battery requests that the court enter judgment in its favor for the Disputed Funds, together with
interest and attorneys’ fees and costs. Id.
On March 12, 2015, the USA removed the case to this court on behalf of the IRS and asserted
that the USA is the real party in interest. Dkt. 1. On April 18, 2015, the USA filed an answer in
which it clarifies that the IRS is not a proper party and that any suit naming the IRS as a party is, in
fact, a suit against the USA. Dkt. 7. On April 28, 2015, METRO deposited the Disputed Funds into
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the Registry of the Court. On November 27, 2015, the USA filed a notice of levy against
Powerhouse Battery, Inc., for $91,540.05. Dkt. 11. On December 1, 2015, the USA filed a notice
of levy against Powerhouse Battery, Inc., for $93,881.62. Dkt. 13.
The USA filed its motion for summary judgment on December 1, 2015. Dkt. 12. The USA
asserts that it is entitled to all of the Disputed Funds due to Powerhouse Battery, Inc.’s outstanding
tax liabilities. Id. It provides evidence that Powerhouse Battery, Inc., has unpaid income tax
liabilities and employment tax liabilities in the total amount of $93,511.27 as of October 19, 2015,
and that CMAC, Inc., d/b/a Clark Battery Co. has outstanding employment tax liabilities of
$76,236.38 as of March 30, 2015. Id. The USA asserts that CMAC, Inc., and Powerhouse Battery,
Inc., are alter egos.3 Id. The USA agrees, for the purposes of its motion for summary judgment, that
Powerhouse Battery, Inc., is entitled to the Disputed Funds, but then argues that the federal tax lien
attaches to all the rights to property of Powerhouse Battery, Inc., so the USA is entitled to the funds.
Id. It also argues that METRO is not entitled to attorneys’ fees because attorneys’ fees and costs may
not be awarded from funds subject to a prior tax lien. Id.
II. LEGAL STANDARD
A court shall grant summary judgment when a “movant shows that there is no genuine
dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R.
Civ. P. 56(c). “[A] fact is genuinely in dispute only if a reasonable jury could return a verdict for
the non-moving party.” Fordoche, Inc. v. Texaco, Inc., 463 F.3d 388, 392 (5th Cir. 2006). The
moving party bears the initial burden of demonstrating the absence of a genuine issue of material

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Powerhouse Battery, Inc., d/b/a CBC Battery, however, asserts in its answer that it has
never done business or been under the assumed name of CMAC, Inc. Dkt. 1-2. It did not, however,
file any response opposing the USA’s contention that CMAC, Inc., and Powerhouse Battery, Inc.,
are alter egos.
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fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S. Ct. 2548 (1986). If the party meets its
burden, the burden shifts to the non-moving party to set forth specific facts showing a genuine issue
for trial. Fed. R. Civ. P. 56(e). The court must view the evidence in the light most favorable to the
non-movant and draw all justifiable inferences in favor of the non-movant. Envtl. Conservation Org.
v. City of Dall., Tex., 529 F.3d 519, 524 (5th Cir. 2008).
III. ANALYSIS
Under 26 U.S.C. § 6321,
If any person liable to pay any tax neglects or refuses to pay the same
after demand, the amount (including any interest, additional amount,
addition to tax, or assessable penalty, together with any costs that may
accrue in addition thereto) shall be a lien in favor of the United States
upon all property and rights to property, whether real or personal,
belonging to such person.
The Government provides the declaration of Amelia Lerma, a revenue officer with the IRS’s
Collection Technical Advisory Group. Dkt. 12-1. Lerma generated account transcripts for
Powerhouse Battery, Inc., for its federal income tax liabilities for the tax years ending on December
31, 2008, December 31, 2009, and December 31, 2010, and its Form 941 taxes for the quarters
ending September 30, 2009 and December 31, 2009. The transcripts reveal that Powerhouse Battery,
Inc., owes $93,511.27 in federal income tax and employment tax liabilities as of October 18, 2015.
Id. The IRS filed two notices of federal tax liens against Powerhouse Battery, Inc., with the Texas
Secretary of State. Id. The IRS filed the first notice on April 5, 2010, for Form 941 employment
taxes assessed in December 2009 and March 2010. Id.; Dkt. 12-3 (notice that Powerhouse Battery
Inc., has an unpaid balance of $81,341.28 for taxes assessed in 2009 and 2010). The IRS filed the
second notice on February 9, 2015, for federal income taxes assessed in 2012. Dkt. 12-1; Dkt. 12-3
(notice that Powerhouse Battery, Inc., has an unpaid balance of $2,730.00 for taxes assessed in 2012
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for the 2010 tax year). Lerma also provides information about CMAC, Inc.’s tax liabilities. Dkt. 121.
The METRO contract is with Clark Battery Company. Dkt. 1-1, Ex. A. The liens the IRS
served on METRO are for CMAC, Inc., or Clark Battery Company. Dkt. 1-1, Ex. B. Powerhouse
Battery, Inc., indicated in its answer that it does business as “CBC Battery.” Dkt. 1-2. It asserts that
CBC Battery (as opposed to Clark Battery Company) provided the goods to METRO under the
contract. Id. This appears to be an admission that Powerhouse Battery, Inc., is also known as CBC
Battery and Clark Battery Company.4 Id. Thus, even if Clark Battery Company is a separate
company from CMAC, Inc., the money from METRO clearly was initially owed to Powerhouse
Battery, Inc./CBC Battery/Clark Battery Company. Id. The judgment in the state court is in favor
of Powerhouse, Inc., d/b/a CBC Battery, which is further evidence that the Disputed Funds are a
property interest of Powerhouse, Inc., even though the contract is between METRO and Clark
Battery Company, and the invoices are from CBC Battery Company. See Dkt. 1-1, Ex. G. The
levies filed by the USA in this case are against Powerhouse Battery, Inc. Dkts. 11; 13. These levies
far exceed the amount due to Clark Battery Company under the METRO contract and due
Powerhouse Battery, Inc. under the state court judgment. The court therefore finds that the USA has

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Powerhouse Battery, Inc. attached an affidavit to its answer in which Michael Clark asserts
he is the director and president of both Powerhouse Battery, Inc., and CMAC, Inc. Dkt. 1-2. Clark
asserts that Powerhouse Battery, Inc., has conducted business under the name “CBC Battery” and
CMAC, Inc., has conducted business under the name “Clark Battery Company.” Id. He asserts that
“CBC Battery has never done business as the assumed name of CMAC, Inc.” Id. Regardless, it is
clear that CBC Battery has done business as Clark Battery Company. Clark asserts that CBC Battery
sold batteries to METRO and attaches invoices from CBC Battery to METRO, yet the contract for
batteries is between METRO and Clark Battery Company, and the letter awarding the contract for
batteries is addressed to Clark Battery Company. Dkt. 1-2, Exs. A–E. This evidence indicates that
CBC Battery and Clark Battery Company, which both have the same address on the aforementioned
documents, are either the same company or alter egos. Clark has provided no evidence to the
contrary.
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met its summary judgment burden of demonstrating the absence of a genuine issue of material fact.
Since neither METRO nor Powerhouse has responded to the motion, they have not met the burden
of setting forth specific facts to show there is an issue for trial. The USA has a lien on the Disputed
Funds under 26 U.S.C. § 6321. Accordingly, the USA’s motion for summary judgment with regard
to the interpleaded funds is GRANTED. The USA is entitled to the Disputed Funds.
The USA also moves for summary judgment on METRO’s request for attorneys’ fees and
costs associated with bringing the interpleader action. Dkt. 12. However, “[t]he portion of an
interpleaded fund that is subject to a Government tax lien cannot be reduced by an award of
attorney’s fees to the stakeholder bringing the interpleader action.” Spinks v. Jones, 499 F.2d 339,
340 (5th Cir. 1974). The USA has met its burden of showing that there is no genuine issue of
material fact with regard to METRO’s claim for attorneys’ fees and that the claim should be denied.
METRO has not provided any evidence that there is an issue of fact for trial. Accordingly, the
USA’s motion is GRANTED and METRO’s claim for attorneys’ fees, insofar as it seeks for the fees
to be paid out of the interpleaded funds, is DENIED.
IV. CONCLUSION
The USA’s motion for summary judgment is GRANTED. The USA is entitled to the
Disputed Funds totaling $53,929.26 and any accrued interest thereon, and METRO is not entitled
to recover attorneys’ fees from the Disputed Funds. The USA is ORDERED to submit a proposed
final judgment within ten (10) days of the date of this order.
Signed at Houston, Texas on January 11, 2016.

___________________________________
Gray H. Miller
United States District Judge
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