Meyers v. United States of America

REPLY BRIEF re First MOTION for Summary Judgment

N.D. Ga.July 6, 2017

1 IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF GEORGIA ATLANTA DIVISION Steven J. Myers ) Plaintiff ) v. ) Civil Action No 1:16-CV-1792 United States of America ) Defendant ) PLAINTIFF’S REPLY TO DEFENDANT’S RESPONST TO PLAINTIFF’S MOTION FOR SUMMARY JUDGEMENT INTRODUCTION Case 1:16-cv-01792-ELR Document 30 Filed 07/06/17 Page 1 of 13 2 Plaintiff’s Motion for Summary Judgement was limited to Counts I and II in his original complaint. The Plaintiff will reply to the Defendant’s Response to the above motion separately for each of the two counts. COUNT I Count I of the original Complaint asserted that under §26 U.S.C. 6772 (b)(3)(B) the statute of limitations for the assessment of the trust fund penalty concerning Window Media LLC had passed when the assessment was made. In arguing against the Plaintiff’s motion for summary judgement for Count 1 of Plaintiff’s complaint, the Defendant cites three cases. Two of these cases concern §26 U.S.C. 6772 (b)(3)(A), not §26 U.S.C. 6772 (b)(3)(B). In the first of these two cases, Johnson v. United States, 861 F.Supp.2d 609 (D.Md. 2012), the actual holding was that the formal notice of the trust fund penalty assessment was not procedurally required before the actual assessment. The Court noted that the service had mailed the notice of assessment on March 21, 2005 and assessment was on June 14, 2005, a good two weeks before the ninety days expiration date (however one defines it.) So Johnson did not address the issue before this Court. The second case, United States v. Sabaratnam, 2015 WL 666775 (C.D. Ca June 26, 2015) is an unpublished decision having no precedential value. The only way Case 1:16-cv-01792-ELR Document 30 Filed 07/06/17 Page 2 of 13 3 Plaintiff has knowledge that Sabaratnam involved §26 U.S.C. 6772 (b)(3)(A) was the fact that the Defendant said so in his brief. Neither of these two cases support the Defendant’s position that the IRS had 30 full days to assess a trust fund penalty under §26 U.S.C. 6772 (b)(3)(B). The third case, Glass v. United States, 335 F.Supp.2d. 736 (N.D, Tx. 2004), held that the Plaintiff was entitled to reimbursement of attorney fees because the government pursued a counterclaim knowing that the trust fund penalty assessment was made ten months after the final notice of determination referred to in §26 U.S.C. 6772 (b)(3)(B). In its discussion of the facts, the Court made the following observation: “… the Government had 30 days after the final determination of the appeal to make a final penalty assessment. Accordingly, the Government had 30 days from June 3, 1998 (that is, until July 3, 1998) to make a final assessment.” This statement could just as easily support Plaintiff’s position as the Defendant’s. In fact, the Court in Glass misstated §26 U.S.C. 6772 (b)(3)(B). This subparagraph does not say that the “… the Government had 30 days after the final determination of the appeal to make a final penalty assessment.” In actuality, this subparagraph states that the statute of limitations for the assessment, “…. shall not expire before the later of….if there is a timely protest of the proposed assessment, the date 30 days after the Secretary makes a final administrative determination Case 1:16-cv-01792-ELR Document 30 Filed 07/06/17 Page 3 of 13 4 with respect to such protest.” The statute of limitations stays open only for that time span before the date thirty days after the final administrative determination. In this case the final notice of determination was December 9, 2013 (Defendant accepted this date for the purposes of his argument) and the date of assessment was January 8, 2014. The date thirty days after December 9, 2013 was January 8, 2014. In order for the assessment to be “before” January 8, it must have been made January 7 or before. The Defendant makes the point that the Plaintiff has no authority to bolster his claims regarding the meaning of §26 U.S.C. 6772 (b)(3)(B). But the Defendant has no authority for his position regarding the meaning of §26 U.S.C. 6772 (b)(3)(B) either. This is a novel issue this Court must decide upon. The Plaintiff agrees with all of the Defendant’s statements regarding the plain meaning doctrine, except his assertion that it dictates a finding for the Defendant. The plain meaning doctrine requires a finding for the Plaintiff instead. COUNT II Case 1:16-cv-01792-ELR Document 30 Filed 07/06/17 Page 4 of 13 5 The Defendant states that Section 5.1(a) of the controlling operating agreements for Window Media LLC and Unite Media LLC (attached Exhibits 1 and 2) only establishes Avalon’s majority interest and describe its voting rights on the board. The Defendant states that the above Section 5.1(a) did not convey any operational control to any board members or address the day-to-day management of the two companies. The beginning of Section 5.1(a) for both operating agreements states the following: “Subject to the provisions of this Agreement, the business of the Company shall be managed under the direction of its Board of Managers.” This “direction” gives ultimate control over all operations of the two companies to the Board of Managers. If this provision is not enough to establish the right of control by the Board of Managers, Section 5.3(c) (attached Exhibits 3 and 4) of the two operating agreements glitches it. This paragraph states, “ The Board shall gave the full and absolute right, power, and authority to manage and control the Company and its property, assets, affairs and business including the supervision of the officers of the Company.” The Defendant is saying that voting rights of a member majority does not translate into control at the day-to-day operations level. First off, Section 5.1(a) of both operating agreements gives the majority members the right to choose a majority of the Board of Managers. Pursuant to 5.1(c) of the operating agreements Case 1:16-cv-01792-ELR Document 30 Filed 07/06/17 Page 5 of 13 6 (Exhibit 2 and 5), the vote of a majority of the board members constituted an act of the Board. If the majority members (here the Receiver after the establishment of the Receivership) did not like something an officer or employee was doing, the Receiver could simply make some calls to the board members (the majority of which were appointed by the majority members—in this case the Receiver) and have them bring the officer or employee into line. If the board of managers refused, the Receiver under 5.1(e) of the operating agreements (Exhibit 2 and 5) could immediately replace the majority of the board members with those who would obey the Receiver. Once this was done, the new board could order the officer or employee to fall in line or fire the officer or employee and replace him or her with someone more obedient. All this could be done in an hour. To say that the Receiver did not have any control over the operations of the companies is to deny the express terms of the operating agreements and reality. The Defendant makes the statement (ECF No 28 at 7:15 - 16), “Thus the receiver could not have paid the trust fund penalty even if it had wanted to.” No, in fact the receiver could had picked up the phone and ordered the Plaintiff to pay whatever funds were available to satisfy the payroll tax obligation and Plaintiff would have done so, just he had always obeyed whatever directives was given him by the Receiver. The Case 1:16-cv-01792-ELR Document 30 Filed 07/06/17 Page 6 of 13 7 Receiver did not place such a phone call because it did not fit into the Receiver’s plans. The Defendant makes the statement (Id at 8: 3 – 4), “…but there is no evidence that the Receiver directed specific payments from, or engaged in the day- to-day operations over, the companies…” No evidence? Even if one totally ignores Steven Myers sworn deposition testimony, there are still the deposition s (with attached exhibits) of Steven Klahn and Mike Kitchens, two nonparty, disinterested witnesses who have given direct, unambiguous testimony that the receiver’s agent, Brian Stern, made multiple operational decisions, along with directing the managers of the two companies to put critical vendors ahead of the IRS. See ECF No.18, 2 at 3: 12-19; 4; 5: 1-7. The Defendant is standing on its position that because the Consent Order creating the Receivership did not specifically mention Window Media LLC and Unite Media LLC, the powers given by the Court to the Receiver did not include any control over the two companies. As stated before by the Plaintiff in his brief in support of his motion for summary judgement, if this is the case, the Receivership is a sham since it had no power or control over any Avalon assets of any value. The Defendant would have us believe that the Plaintiff could have given himself a Case 1:16-cv-01792-ELR Document 30 Filed 07/06/17 Page 7 of 13 8 fat raise equal to the companies’ cash on hand and a company car and the Receivership could not have done anything about it. The Defendant admits in its additional statement of facts that Avalon had controlling interest in Window and Unite. With this controlling interest came control and power over the companies (See pages 5 and 6 of this document.) The Defendant stated that, “Nor is Myers helped by his observation that the powers of a receiver depend not only on the authority granted by the court, but also on what authority it actually exercises.” The Defendant is making a reference to one of several cases discussed by Plaintiff in ECF No. 18-2 at paragraph 7. The bulk of the authorities cited by the Plaintiff in this paragraph support the premise that the sole guide to determining the control of a receiver is the language used by the court in the order creating the receivership. In ECF No. 18-2 paragraph 10, the Plaintiff cited a number of cases in which a trust fund penalty had been assessed for payroll taxes accrued before the appointment of a receiver. The Defendant stated in his response (ECF 23-2, at 8 : 8 – 10) that, “Myers acknowledges that courts generally uphold the assessment of trust fund penalties even when a receiver has been appointed over a company.” The Plaintiff cannot find anything in ECF No. 18-2, paragraphs 10 and 11 that Case 1:16-cv-01792-ELR Document 30 Filed 07/06/17 Page 8 of 13 9 could justify such a statement. The Defendant distinguishes all of these cases by saying that the receivership was appointed directly over the companies that had the trust fund penalty, not over a holding company that held the companies as in this case. This is a distinction of no significance since the holding company here had control pursuant to its power as the member majority. The Plaintiff has addressed the issue of the power of the member majority to control the companies in pages 5 and 6 of this document. The Defendant attempts to distinguish the Jones case from the present case by saying the receiver in the Jones case in fact exercised power while the Receiver in this case had no control over the day-to-day operations of the companies. Please see the see first paragraph of page 7 of this document for the reply to this argument. Finally, the Defendant makes mention of the fact that a responsible party cannot avoid liability merely because there may be an additional responsible party. Plaintiff would agree to this if Plaintiff had been following the direction of a private individual. However, this case is different. Here the other responsible party is the government. In this case, the Plaintiff was taking direction from an agency of the United States government. In this case, the Plaintiff is not a responsible party. Case 1:16-cv-01792-ELR Document 30 Filed 07/06/17 Page 9 of 13 10 PLAINTIFF’S RESPONSE TO DEFENDANT’S ADDITIONAL STATEMENT OF MATERIAL FACTS 10. Avalon Equity Fund, L.P. held a controlling interest in Window Media LLC. (Thomas Morris Depo., 20:17-19. Plaintiff does not dispute the facts related in the above paragraph 10 11. Avalon Equity Fund, L.P. held a controlling interest in Unite Media, LLC. (Thomas Morris Depo., 21:13-19. Plaintiff does not dispute the facts related in the above paragraph 11 12. Avalon Equity Fund’s controlling interest in Window Media, LLC did not give the SBA receiver the authority to control Window Media, LLC’s day-to-day operations. (Thomas Morris Depo at 42:11-22, 43:1-18; Brian Stern Depo at 9:1-5) Case 1:16-cv-01792-ELR Document 30 Filed 07/06/17 Page 10 of 13 11 Plaintiff disputes this alleged fact. Please see attached Exhibits 1, 3 and 4. As for an explanation as to how these exhibits gave the SBA the authority to control the day-to-day operations, please see the first two paragraphs of Count 1 of this document. Plaintiff points out that the above 12 is actually an opinion of two party witnesses, not a fact. 13. Avalon Equity Fund’s controlling interest in Unite Media, LLC did not give the SBA receiver the authority to control Unite Media LLC’s day-to- day operations. Plaintiff disputes this alleged fact. Please see the above answer to Defendant’s statement of material facts #12. But instead of seeing attached Exhibit 1, see attached Exhibit 2. As with material fact 12, this material fact 13 is actually an opinion of two party witnesses, not a fact. Dated: July 6, 2017 Respectfully Submitted, /s Edwin Glover Edwin Glover Case 1:16-cv-01792-ELR Document 30 Filed 07/06/17 Page 11 of 13 12 I certify that this pleading is being submitted in accordance with L.R. 5.1 C s/ Edwin Glover Edwin Glover Attorney for Plaintiff CERTIFICATE OF SERVICE I hereby certify that on July 6, 2017, I sent the foregoing Plaintiff’s Brief In Response To Defendant’s Motion for Summary Judgement to counsel of record identified below by CM/ECF and first class mail to the address listed below. CHRISTOPHER M. WHITCOMB Trial Attorney, Tax Division U.S. Department of Justice P.O. Box 14198 Washington, D.C. 20044 /s Edwin Glover Edwin Glover Attorney for Plaintiff Case 1:16-cv-01792-ELR Document 30 Filed 07/06/17 Page 12 of 13 13 Case 1:16-cv-01792-ELR Document 30 Filed 07/06/17 Page 13 of 13 Case 1:16-cv-01792-ELR Document 30-1 Filed 07/06/17 Page 1 of 1 Case 1:16-cv-01792-ELR Document 30-2 Filed 07/06/17 Page 1 of 2 Case 1:16-cv-01792-ELR Document 30-2 Filed 07/06/17 Page 2 of 2 Case 1:16-cv-01792-ELR Document 30-3 Filed 07/06/17 Page 1 of 1 Case 1:16-cv-01792-ELR Document 30-4 Filed 07/06/17 Page 1 of 1 Case 1:16-cv-01792-ELR Document 30-5 Filed 07/06/17 Page 1 of 1