Company President Is Liable for Unpaid Payroll Taxes

The November 8, 2006, Order did not restrict Plaintiff's right to pursue relief on its pre-petition claims submitted in its November 1, 2004, Fourth Amended Proof of Claim. As such, on June 11, 2012, Plaintiff filed a Complaint [1] in this Court against Jomey Ethridge and Cynthia McDaniel¹, seeking recovery of $742,894.51 plus interest for unpaid trust fund recovery penalty assessments resulting from Defendant's willful refusal to pay these sums. According to the Complaint, this action is brought pursuant to:

Plaintiff contends that during the period between March 31, 2002, and December 31, 2004, Defendant was the party responsible for collecting, accounting for, and remitting federal employment taxes for Struthers Industries employees. Plaintiff alleges that during the relevant time period, Defendant deposited millions of dollars into the Struthers operating accounts at Hancock Bank, and withdrew these same funds. As the person responsible to "collect, truthfully account for, and pay over the income and employment taxes withheld from Struthers' employees, [Defendant] willfully failed to satisfy those responsibilities and was duly assessed trust fund recovery penalties as a result pursuant to 26 U.S.C. § 6672." Compl. [1] at p 7. Plaintiff now moves for summary judgment on its claims pursuant to Federal Rule of Civil Procedure 56.

Federal Rule of Civil Procedure 56(a) provides that summary judgment is appropriate "[i]f the 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(a). The purpose of summary judgment is to isolate and dispose of factually unsupported claims or defenses. Melton v. Teachers Ins. & Annuity Ass'n of America, 114 F.3d 557, 560 (5th Cir. 1997)(citing Celotex Corp. v. Catrett, 477U.S. 317, 324 (1986)).

To rebut a properly supported motion for summary judgment, the opposing party must show, with "significant probative evidence," that there exists a genuine issue of material fact. Hamilton v. Segue Software, Inc., 232 F.3d 473, 477 (5th Cir. 2000). In deciding whether summary judgment is appropriate, the Court views facts and inferences in the light most favorable to the nonmoving party. RSR Corp. v. Int'l Ins. Co., 612 F.3d 851, 858 (5th Cir. 2010). However, if the evidence is merely colorable, or is not significantly probative, summary judgment is appropriate. Cutting Underwater Techs. USA, Inc. v. ENI U.S. Operating Co, 671 F.3d 512, 516 (5th Cir. 2012)(citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986)). "[M]ere conclusory allegations are not competent summary judgment evidence, and such allegations are insufficient, therefore, to defeat a motion for summary judgment." Eason v. Thaler, 73 F.3d 1322, 1325 (5th Cir. 1996).

"There is no material fact issue unless the evidence is such that a reasonable jury could return a verdict for the nonmoving party." RSR Corp., 612 F.3d at 858. "A fact is 'material' if its resolution in favor of one party might affect the outcome of the lawsuit under governing law. An issue is 'genuine' if the evidence is sufficient for a reasonable jury to return a verdict for the nonmoving party." Hamilton, 232 F.3d at 477 (citing Anderson, 477 U.S. at 248). "The court has no duty to search the record for material fact issues." RSR Corp., 612 F.3d at 858. "Rather, the party opposing summary judgment is required to identify specific evidence in the record and to articulate precisely how this evidence supports his claim." Id.

B. Plaintiff's Motion for Summary Judgment

The Internal Revenue Code of 1954 ["IRC"], codified at Title 26 of the United States Code, requires an employer to deduct and withhold income and social security taxes from the wages paid to its employees. The withheld taxes shall be held by the employer as a special trust fund for the benefit of the United States. 26 U.S.C. § 7501. The statutory framework includes § 6672, which states in relevant part as follows:

Section 6672 establishes a two-part test for imposing liability on persons for failure to pay federal withholding taxes. First, it must be determined that the party was the "responsible person" charged with the requirement "to collect, truthfully account for, and pay over any tax imposed by this title. . . ." Slodov v. United States, 436 U.S. 238, 245 n.7 (1978). Second, the Court must resolve whether the "responsible person" "willfully" failed to pay the taxes in question. 26 U.S.C. § 6672(a). Both of these requirements must be established in order to impose liability under § 6672. McCarty v. United States, 437 F.2d 961, 967 (1971).

Plaintiff seeks $742,894.51 plus interest in unpaid trust fund recovery penalties. In support of its request, Plaintiff has tendered pertinent records and orders from the Chapter 11 bankruptcy proceeding. Plaintiff has also submitted Form 4340 for the tax liabilities at issue during the March 2002 and June 2003 time periods. Internal Revenue Service Cert. of Official Record [14-9], att. as Ex. "9" to Pl.'s Mot. for Summ. J. Plaintiff contends that the undisputed facts show that Defendant is liable for the trust fund recovery penalties assessed against him under 26 U.S.C. § 6672, such that it is entitled to judgment as a matter of law.

Defendant's Response acknowledges the deficient payments to the IRS, Resp. [17], at p. 2, but argues that the "United States received $900.000.00, in full and final satisfaction of its administrative claim," and denies that "any failure to pay was willful," id. Defendant further denies that "company receipts were diverted for other purposes" and claims that "all available funds were in fact paid for employment taxes." Id. at pp. 2-3.

At the outset the Court notes that the Bankruptcy Court's Order entered November 8, 2006, contained the following statement:

The language contained in the Bankruptcy Court's Order is plain and unambiguous, and explicitly preserves Plaintiff's right to bring this action. Defendant's argument that the $900,000.00, payment amounted to full satisfaction of Plaintiff's claims for the pertinent time periods is unpersuasive.

Defendant testified in his deposition that he did not "willfully withhold these taxes" and that he had "every intent to make those payroll taxes." Dep. of Jomey Ethridge [14-1], at pp. 23. However, Defendant acknowledged that there were "employees that were paid where payroll taxes were delinquent in being submitted" and "certain vendors that were paid that were shipping critical materials that were paid instead of the payroll taxes being remitted." Id. at pp. 22-23.

Ms. Phyllis Carlton was employed by Defendant from 1996-2004 and was in charge of payroll. Ms. Carlton testified in her deposition that she prepared and turned the relevant 941 Forms over to Defendant along with checks she had prepared for tendering to the IRS, and that Defendant was aware of the tax liabilities for the 2002-2003 quarters. Dep. of Phyllis Carlton [14-6], at p. 18. Inasmuch as payroll taxes were being withheld from her and the other employees' paychecks during this time, Ms. Carlton assumed that when she supplied Defendant with the signed 941 Forms and prepared checks, he in turn signed the checks and remitted them, along with the 941 Forms, to the IRS. Id. at pp. 15-16, 23. According to Ms. Carlton, it was solely Defendant's decision not to remit the payroll taxes. Id. at p. 20.

The evidence of record demonstrates that during the time period between January 1, 2002, and June 30, 2003, Defendant deposited and had access to over $13 million dollars in the Struthers payroll account. See Hancock Bank Account Summaries [11], att. as Ex. "11" to Pl.'s Mot. for Summ. J. The evidence also shows that Defendant chose to repay or reimburse himself for certain personal capital outlays and other company obligations in lieu of remitting the outstanding balance owed to the IRS. See Loan Payment Summary [12], att. as Ex. "12" to Pl.'s Mot. for Summ. J.; Dep. of Jomey Ethridge [14-1], at p. 48. Plaintiff has further tendered documents and deposition testimony to support the conclusion that Defendant had knowledge of other creditors being paid after he was aware of the outstanding tax liability. See Dep. of Jomey Ethridge [14-1]; Dep. of Phyllis Carlton [14-6]; Ethridge Loan Payments [14-12].

In opposition to Plaintiff's submissions, Defendant Ethridge has not presented significant probative evidence, instead relying on mere denials and conclusory averments. These are insufficient to rebut Plaintiff's showing of entitlement to relief. See Booth v. Wal-Mart Stores, Inc.,75 F. Supp. 541, 543 (S.D. Miss. 1999). Based on the foregoing, and having construed the evidence in the light most favorable to the non-movant, the Court concludes that summary judgment in Plaintiff's favor is appropriate. See Mazo, 591 F.2d at 1157; Moore v. United States, 465 F.2d 514, 517-18 (5th Cir. 1972).

IT IS, THEREFORE, ORDERED AND ADJUDGED that, for the reasons stated herein, Plaintiff United States of America's Motion [14] for Summary Judgment, filed January 8, 2013, pursuant to FED. R. CIV. P. 56, is GRANTED.

SO ORDERED AND ADJUDGED, this the 5^th day of June, 2013.