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Benitez v. U.S.

United States District Court, D. Puerto Rico
Aug 9, 2006
CIVIL NO. 05-1860 (JP) (D.P.R. Aug. 9, 2006)

Opinion

CIVIL NO. 05-1860 (JP).

August 9, 2006


OPINION AND ORDER


I. INTRODUCTION :

The Court has before it the Plaintiff's "Motion for Summary Judgment," ( docket No. 31), which is unopposed. For the following reasons, the Court hereby GRANTS the Defendants' motion ( docket No. 31).

The Plaintiff filed her motion for summary judgment on June 19, 2006 (docket No. 31). The Defendant's opposition to the motion was due on July 3, 2006. The Defendant failed to file an opposition by July 3, and on July 6, 2006, the Plaintiff filed a motion requesting that the Court adjudicate her motion as unopposed (docket No. 36). The same is hereby GRANTED. The Defendant having failed to oppose the Plaintiff's motion and statement of uncontested facts, the Court accepts as true all the Plaintiff's properly supported uncontested facts. See Loc. R. Civ. P. 56; see also Cosme-Rosado v. Serrano-Rodríguez, 360 F.3d 42, 44-45 (1st Cir. 2004) (holding that because Plaintiffs had failed to provide a supported factual basis for their claims against Defendants, the Court properly deemed admitted Defendants' supported facts).

II. LEGAL STANDARD

Under Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment is appropriate where, after drawing all reasonable inferences in favor of the non-moving party, there is no genuine issue of material fact for trial. Pagano v. Frank, 983 F.2d 343, 347 (1st Cir. 1993). A fact is material if it might affect the outcome of the case. Mack v. Great Atl. and Pac. Tea Co., Inc., 871 F.2d 179, 181 (1st Cir. 1989). An issue is genuine if sufficient evidence exists to permit a reasonable trier of fact to resolve the issue in the non-moving party's favor. Boston Athletic Ass'n v. Sullivan, 867 F.2d 22, 24 (1st Cir. 1983).

The party filing a motion for summary judgment bears the initial burden of proof to show "an absence of evidence to support the non-moving party's case." Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 2554, 91 L. Ed. 2d 265 (1986). The burden then shifts to the non-moving party to show affirmatively, through the filing of supporting affidavits or otherwise, that a genuine issue exists for trial. See Goldman v. First Nat'l Bank of Boston, 985 F.2d 1113, 1116 (1st Cir. 1992). In discharging this burden, the non-moving party may not rest upon mere allegations or denials of the pleadings. See Fed.R.Civ.P. 56(e). On issues where the non-moving party bears the ultimate burden of proof, it must present definite, competent evidence to rebut the evidence put forth by the moving party. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256-257, 106 S.Ct. 2505, 2514-2515, 91 L. Ed. 2d 202 (1986). Indeed, summary judgment may be appropriate ". . . where elusive concepts such as motive or intent are at issue . . . if the non-moving party rests merely upon conclusory allegations, improbable inferences, and unsupported speculation." Woods v. Friction Materials, Inc., 30 F.3d 255, 259 (1st Cir. 1994). III. FINDINGS OF FACT

A. Uncontested Facts

The following facts were stipulated as true and uncontested by the parties at the Initial Scheduling Conference held before the undersigned on February 22, 2006:

A. MSE Rental, Inc., MSE Management, Inc., MSE Contractors, Inc., and Mechanically Stabilized Earth Constructions, Inc., collectively known hereinafter as "the Debtor Corporations," are corporations duly organized and created under the laws of the Commonwealth of Puerto Rico.
B. Franco Meléndez-Benítez was the president and sole shareholder of the Debtor Corporations.
C. The purpose of the Debtor Corporations was to engage in the construction business, specializing in the construction of retaining walls and soil removal and stabilization.
D. Leticia Meléndez-Benítez was named secretary of Debtor Corporations.
E. Leticia Meléndez-Benítez was authorized to sign checks of the Debtor Corporations as a counter signatory.
F. Franco Meléndez-Benítez determined which obligations of the Debtor Corporations would be paid, when they would be paid, and in what order.
G. Leticia Meléndez-Benítez was an employee of the Debtor Corporations, but was not a shareholder, nor did she have an entrepreneurial stake in the Debtor Corporations.
H. On April 23, 2003, the IRS assessed and charged Leticia Meléndez-Benítez with the first Recovery Penalties under 26 U.S.C. 6672 ("Section 6672").
I. The IRS performed an "Interview with Individual to Trust Fund Recovery Penalty or Personal Liability for Excise Tax" to Leticia Meléndez-Benítez on July 23 and 24, 2003, in order to determine her liability under Section 6672.
J. Franco Meléndez-Benítez was summoned by the IRS for an "Interview with Individual to Trust Fund Recovery Penalty or Personal Liability for Excise Tax" that was performed on July 31, 2003.
K. Some Recovery Penalties were assessed by the IRS on Leticia Meléndez-Benítez prior to conducting the necessary examination to determine if she was truly a "responsible person" under 26 U.S.C. § 6672.
L. Leticia Meléndez-Benítez advised Franco Meléndez-Benítez that the Debtor Corporations needed to pay the withheld Federal Employment Taxes of its employees, specially for the periods of the years 2001 and 2002.
M. On November 2004, Leticia Meléndez-Benítez filed a "Claim for Refund and Request for Abatement" ("Claim for Refund") with the IRS, in order to challenge the Recovery Penalty charged against her.
N. On February 17, 2005, the IRS issued a Notice of Federal Tax Lien that was filed at the Property Registry of Puerto Rico, thereby placing a lien attaching all property currently owned by Leticia Meléndez-Benítez, including her home and residence in Río Piedras, Puerto Rico.
O. On April 6, 2005, the IRS sent a letter to Leticia Meléndez-Benítez notifying her that in order to reinstate her appeal rights, she needed to deposit payment equivalent to the withholding amount of a simple employee of Debtor Corporations for one month.
P. On April 21, 2005, Meléndez-Benítez deposited the required amounts with the IRS, in order to reinstate her appeal rights.
Q. On July 11, 2005, the IRS issued a "legal notice" informing Leticia Meléndez-Benítez that the Claim for Refund had been disallowed, with no explanation as to the reasons why her claim was denied.
R. MSE Contractors, Inc., failed to pay over withheld federal taxes for the second, third, and fourth quarters of 2002.
S. MSE Management, Inc., failed to pay over withheld federal taxes for the first, second, third, and fourth four quarters of 2002.
T. Mechanically Stabilized Earth failed to pay over withheld federal taxes for the first, second, third, and fourth four quarters of 2001.
U. MSE Rental failed to pay over withheld federal taxes for the first, second, third, and fourth four quarters of 2002.
V. Both Plaintiff Leticia Meléndez-Benítez and third party Defendant Franco Meléndez-Benítez were registered as authorized signatories of checks against MSE Construction Company's accounts.
W. The bank honored checks which were signed by Plaintiff Leticia Meléndez-Benítez alone for MSE Construction.
X. Both Plaintiff Leticia Meléndez-Benítez and third party Defendant Franco Meléndez-Benítez were officers of each company.

B. Further Findings of Fact

After thoroughly evaluating the parties' statements of proposed uncontested facts and supporting evidence, the Court determines that the following material facts are not in genuine issue or dispute and designates them as further findings of fact:

A. Plaintiff Leticia Meléndez-Benítez was a part time employee of the Debtor Corporations. She was hired to perform ministerial tasks as an administrative assistant on behalf of the Debtor Corporations with the authorization of Franco Meléndez-Benítez.
B. Though Plaintiff Leticia Meléndez-Benítez was authorized to sign checks on behalf of the Debtor Corporation as a counter signatory, she could not write, prepare, or sign checks on behalf of the Debtor Corporations without Franco Meléndez-Benítez's approval and authorization.
C. Plaintiff did not have the power or authority to hire or fire employees on behalf of the Debtor Corporations.
D. On the "Report of Interview with Individual to Trust Fund Recovery Penalty or Personal Liability for Excise Tax" performed on Franco Meléndez-Benítez, Franco Meléndez-Benítez declared that he always, as President of the Debtor Corporations, was the person who authorized the payment of bills, dealt with major suppliers and customers, negotiated large corporate purchases, contracts, and loans, authorized personnel to make deposits on bank accounts, authorized personnel to prepare and sign payroll checks, prepared and signed all tax return forms of the Debtor Corporations, determined company financial policy, and authorized payment of federal tax deposits.
E. Franco Meléndez-Benítez always negotiated and executed all necessary documents needed for performance bonds needed for the construction projects required by the Debtor Corporations for all the construction projects. He also was the person who executed loan and finance documents on behalf of Debtor Corporations.
F. The only person who had the ability and power within the Debtor Corporations to pay creditors, suppliers, vendors and taxes on behalf of the Debtor Corporations, and who was in charge of the finances of the Debtor Corporations was Franco Meléndez-Benítez.
G. Plaintiff did not have the authority to pay taxes or any other obligations of Debtor Corporations, nor to order the preparation of checks.
H. Plaintiff Leticia Meléndez-Benítez and another employee named Luis Meléndez, gave Franco Meléndez-Benítez reports of accounts payables, and Franco determined which debts would be paid and in what order, and after which Franco Meléndez-Benítez ordered the preparation and signature of the checks.
IV. CONCLUSIONS OF LAW

Employers are required to deduct Social Security, Medicare and federal income taxes from employee wages, and turn them over to the Internal Revenue Service. The primary liability for failing to do so is the employer's, but a penalty for such a failure equal to the unpaid tax can be collected from "[a]ny person" who was "required" but "willfully" failed to pay over the withheld taxes. I.R.C. § 6672 (2000); see also Lubetzky v. United States, 393 F.3d 76 (1st Cir. 2004) (upholding a jury's finding that the plaintiff, an officer of the debtor corporation, was a responsible party under Section 6672). Such persons are described in the case law as "responsible persons," a term whose parameters have been delineated by the courts. Id., citing Mertens Law of Federal Income Taxation §§ 55:107-:113 (1997 2004 Supp.).

A responsible person under Section 6672 is anyone within a company who has a duty to collect, account for, or pay the withheld taxes. See Vinick v. C.I.R., 110 F.3d 168, 172 (1st Cir. 1997) (hereinafter "Vinick I") (remanding to the district court with instructions for further determinations as to whether the plaintiff was a responsible person under Section 6672). The courts have identified seven factors to be examined in making the determination include whether an individual is a "responsible person" under Section 6672: to be considered are whether the individual (1) is an officer or member of the board of directors, (2) owns shares or possesses an entrepreneurial stake in the company, (3) is active in the management of day-to-day affairs of the company, (4) has the ability to hire and fire employees, (5) makes decisions regarding which, when and in what order outstanding debts or taxes will be paid, (6) exercises control over daily bank accounts and disbursement records, and (7) has check-signing authority. See Vinick v. United States, 205 F.3d 1 (1st Cir. 2000) (hereinafter "Vinick II") (finding that the plaintiff, the treasurer of a corporation, was not a responsible person under Section 6672 because he lacked the actual authority or ability, in view of his status within the corporation, to pay the taxes owed). No single factor is determinative of responsibility. See Barnett v. IRS, 988 F.2d 1449, 1455 (5th Cir. 1993) (holding that evidence at trial was sufficient to prove that plaintiff was a responsible person under Section 6672). When making the determination of responsibility, a court must look at the totality of the circumstances. See Fiataruolo v. United States, 8 F.3d 930, 939 (2d Cir. 1993) (holding that the plaintiffs were not responsible persons under Section 6672 because they lacked authority to ensure compliance with their employer's tax withholding obligations). As the First Circuit has stated, because the goal of the statute is to hold the party responsible for payment liable for the nonpayment of withholding taxes, the "crucial inquiry is whether the person had the `effective power' to pay the taxes — that is, whether he had the actual authority or ability, in view of his status within the corporation, to pay the taxes owed." Vinick II, 205 F.3d at 9,quoting Barnett, 988 F.2d at 1454.

Upon examination of the uncontested facts in this matter, it is clear that Plaintiff Leticia Meléndez-Benítez was not a responsible person regarding the tax liability of the Debtor Corporations. She held no ownership nor entrepreneurial stake in any of the Debtor Corporations; the president and sole shareholder of the Debtor Corporations was the Plaintiff's brother, Franco Meléndez-Benítez. Though the Plaintiff was authorized to sign the Debtor Corporations' checks of as a counter signatory, it was Franco Meléndez-Benítez who determined which obligations would be paid, when they would be paid, and in what order. The Plaintiff could neither issue nor sign checks without Franco Meléndez-Benítez's prior authorization. She did not have the power or authority to hire or fire employees. Though the Plaintiff appears as an officer of the Debtor Corporations, the duties that she performed were ministerial and administrative in nature. It is clear from the evidence before the Court that all of the true authority and control over the Debtor Corporations' administration and finances resided with Franco Meléndez-Benítez, and that the tasks performed by the Plaintiff were executed solely upon his instructions.

Taking into account the totality of the circumstances in this matter, Fiataruolo, 8 F.3d 930, 939, the "crucial inquiry" regarding whether Plaintiff Leticia Meléndez-Benítez had the `effective power' or the actual authority or ability, in view of her status within the Debtor Corporations, to pay the taxes owed,Vinick II, 205 F.3d at 9, must be answered in the negative. It is the Court's determination that Plaintiff Leticia Meléndez-Benítez is not a "responsible person" within the meaning of 26 U.S.C. § 6672, and is therefore entitled to summary judgment on her claims. V. CONCLUSION

For the aforementioned reasons, the Court hereby GRANTS the Plaintiff's motion for summary judgment ( docket No. 31). The Court will enter a Declaratory Judgment in favor of the Plaintiff, declaring that Plaintiff Leticia Meléndez-Benítez is not a "responsible person" within the meaning of 26 U.S.C. § 6672, and ordering the IRS to refund all penalties assessed to the Plaintiff in this matter and to cancel all liens on her property.

IT IS SO ORDERED.


Summaries of

Benitez v. U.S.

United States District Court, D. Puerto Rico
Aug 9, 2006
CIVIL NO. 05-1860 (JP) (D.P.R. Aug. 9, 2006)
Case details for

Benitez v. U.S.

Case Details

Full title:LETICIA MELENDEZ BENITEZ, Plaintiff, v. UNITED STATES OF AMERICA, et al…

Court:United States District Court, D. Puerto Rico

Date published: Aug 9, 2006

Citations

CIVIL NO. 05-1860 (JP) (D.P.R. Aug. 9, 2006)