United States District Court, E.D. Michigan, Southern Division
AMENDED OPINION & ORDER GRANTING PLAINTIFF'S
MOTION FOR SUMMARY JUDGMENT (DKT. 21)
Mark A. Goldsmith, Judge
United States of America brought this action to hold
Defendant John R. Hartman personally liable for his
company's failure to remit payroll taxes. Following
discovery, the Government moved for summary judgment (Dkt.
21). After briefing on the motion was complete, this Court
held a hearing on May 4, 2017. For the reasons stated below,
the Government's motion is granted.
was 50% co-owner and Chief Executive Officer
(“CEO”) of Spectrum Tool & Design, Inc.,
while the company operated from April 2001 to October 2005.
Pl. Statement of Material Facts (“SMF”) ¶ 1,
Pl. Br. at 6. Dan Ott was 50% co-owner and Chief Operating
Officer (“COO”) from April 2001 until Hartman
laid him off in August 2005. Id. ¶¶ 1, 17.
Both Hartman and Ott had authority to handle money for
Spectrum, open and close bank accounts in its name, and sign
checks. Id. ¶ 3.
Hartman signed employees' paychecks, see id.
¶ 5, whereas Ott prepared the payroll tax deposit
checks, see Def. SMF ¶ 3, Def. Resp. at 4 (Dkt.
22). Until December 2003, Spectrum used a third-party payroll
service provider, ADP, to process its paychecks. Def. SMF
¶ 5. This involved (i) providing the necessary payroll
information to ADP (hours worked, hourly rates, etc.); (ii)
waiting for ADP to calculate gross payroll, including
employment taxes; (iii) furnishing ADP the gross amount of
monies due, including taxes; and (iv) receiving unsigned
paychecks from ADP, which Hartman would sign and distribute
to employees. See Pl. SMF ¶ 5. ADP would remit
payroll taxes to the Government. Hartman admitted that he was
the one responsible for paying ADP. Id. (citing
Hartman Dep. Tr. at 78 (Dkt. 21-2)).
December 2003, Spectrum was unable to remit the full amount
of gross payroll (including taxes) due to ADP, and ADP
terminated the contract. Id. ¶ 6. Notably,
Spectrum was able to pay employees their net payroll
during this period, meaning that Spectrum was unable to remit
the gross payroll due to its inability to remit the payroll
tax portion. Id. ¶ 10. Hartman testified that
he knew, in December 2003, that Spectrum could not timely pay
its payroll taxes, but he testified that he and Ott
anticipated that they would be able to pay back the shortfall
in January or February 2004. Id. (citing Hartman
Dep. Tr. at 114-115). After being dropped by ADP, Spectrum
began using an in-house software system for handling payroll,
at Ott's behest.
Government outlines how Hartman would “juggle”
non-tax bills and decide which creditors would be paid
timely, versus who could wait. Id. ¶ 8. Hartman
maintains that Ott was the sole person entrusted to ensure
that Spectrum paid its employment taxes. Id. ¶
9; see also Def. SMF ¶ 3 (“Mr. Ott
prepared the payroll and payroll tax deposit checks.”).
the problem with ADP, which was caused by an inability to
remit that portion of gross payroll attributable to payroll
taxes, Hartman contends that he did not learn that Ott was
routinely failing to pay the payroll taxes until July 2004 -
at which time he arranged a meeting with the IRS to discuss
the shortfalls. Pl. SMF ¶ 11; see also Hartman
Dep. Tr. at 92:7-9 (“Q. And [July 2004 was] when you
first realized that employment taxes were not being paid? A.
That is correct.”). Hartman described independently
discovering accounting irregularities in the in-house
software; getting “nosy, ” and going through
Ott's desk, where he discovered that Ott had not been
paying the taxes. See Hartman Dep. Tr. at 91. Up
until that point, Hartman claims that Ott “was cutting
them [i.e., creating payroll tax checks] regularly, ”
leading Hartman to “think [Ott] was paying
those.” Id. at 90:22-25.
first meeting with the IRS, Hartman says that the IRS told
him to focus on staying current and then “try to get
the back ones caught up.” Pl. SMF ¶ 11. Spectrum
could not stay current, however, necessitating another
meeting with the IRS in October 2004. Id. ¶
October 2004 meeting, “Mr. Hartman discovered that Mr.
Ott had not been keeping up with Spectrum's current
taxes.” Def. SMF ¶ 13. Hartman speculated that,
although some taxes were paid between July and October 2004,
they were applied to the oldest delinquent quarters.
See Hartman Dep. Tr. at 131. He also claimed that,
during that period, Spectrum's in- house accounting
software reflected that the payroll tax checks were being
cut. Id. at 135:23-25. Hartman acknowledges that, at
that meeting, he signed tax returns (“Form 941”)
for quarterly periods ending December 31, 2003 through
September 30, 2004. Pl. SMF ¶ 13; see also
Forms 941, Ex. B to Pl. Mot (Dkt. 21-3). One more Form 941 -
covering the quarter ending December 31, 2004 - also appears
in the Government's Exhibit B, but it was signed on
January 10, 2005, at a different meeting. Hartman alleges
that, notwithstanding his signature, Ott prepared the
returns. See Def. SMF ¶ 13 (citing Hartman Dep.
Tr. at 150:12-151:5); see also Hartman Dep. Tr. at
157. Hartman claims that he was “just signing papers
that had to be signed, ” and that he did not review the
returns, understand them, or pay attention. Hartman Dep. Tr.
Government asserts that “[a]ll five of the employment
tax returns for these periods, which were signed by Mr.
Hartman, reflected that the taxes had not been paid.”
Pl. SMF ¶ 14 (citing Forms 941). In fact, defense
counsel objected to a similar proposition made by the
Government's counsel at Hartman's deposition,
pointing out that the first three tax returns do not report a
January 2005, Spectrum filed for Chapter 11 bankruptcy
protection. Pl. SMF ¶ 19. In monthly reports to the
trustee, Hartman reported that Spectrum had not paid its
post-petition taxes from March through July 2005.
Id. ¶ 21; see also Bankruptcy Reports,
Ex. D to Pl. Mot. (Dkt. 21-5); Def. SMF ¶ 21 (admitting
the Government's assertion in pertinent part).
testified that, beginning in March 2005, he began having
“weekly conversations” with Ott regarding their
“joint decision to pay the employees but not the
taxes.” Hartman Dep. Tr. at 132:21-133:25.
2005, an IRS Revenue Officer interviewed Hartman, which
interview was documented on a Form 4180. See Form
4180, Ex. G. to Pl. Mot. (Dkt. 21-8). Hartman signed the Form
4180 acknowledging that he examined the information on the
form and that it was true. See also Hartman Dep. Tr.
at 144:17-146:18. On the form, Mr. Hartman admitted, among
other things, that he “[d]etermine[d] financial policy
for the business”; “[d]irect[ed] or authorize[d]
the payment of bills”; “[a]uthorize[d] or
sign[ed] payroll checks”; and “[a]uthorize[d] or
ma[de] Fedearl Tax Deposits.” Form 4180 at 3. He
indicated that he did not “[p]repare, review,
sign, [or] transmit payroll tax returns.” Id.
He admitted that he first became aware of the delinquent
taxes in December 2003, and that while the delinquent taxes
were increasing, he authorized the payment of certain of
Spectrum's other financial obligations, including
payroll, utilities, rent, supplies, operating expenses, loan
payments, and equipment leases. Id. at
laid off Ott in August 2005 for performance issues. Pl. SMF
¶ 17. Hartman testified that, even after he fired Ott,
he still used Ott to pay Spectrum's employment taxes.
See Hartman Dep. Tr. at 31:25-32:3.
October 24, 2005, Harman filed, on behalf of Spectrum, a
notice of conversion from Chapter 11 (reorganization) to
Chapter 7 (liquidation). See Pl. SMF ¶ 23.
Following an investigation, the Government assessed the trust
fund liabilities at issue in this case. See id.
STANDARD OF DECISION
motion for summary judgment, “facts must be viewed in
the light most favorable to the nonmoving party only if there
is a ‘genuine' dispute as to those facts.”
Scott v. Harris, 550 U.S. 372, 380 (2007).
“Where the record taken as a whole could not lead a
rational trier of fact to find for the nonmoving party, there
is no genuine issue for trial.” Matsushita Elec.
Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 587
an assessment [under § 6672] is made against a corporate
officer, the burden of proof by a preponderance of the
evidence is on the officer to show that he was not a
responsible person or that he did not act willfully.”
Cline v. United States, 997 F.2d 191, 194-195 (6th
Cir. 1993) (citing Calderone v. United States, 799
F.2d 254, 258 (6th Cir. 1986) (quoting Sinder v. United
States, 655 F.2d 729, 731 (6th Cir. 1981))). It does not
matter who brings the suit. See Sinder, 655 F.2d at
731 (“[T]he taxpayer has the burden of showing that he
was not a responsible party on both the refund claim and
the counterclaim.” (Emphasis added.)). Stated
differently, in the context of a § 6672 claim,
“the adverse consequences from [a] lack of evidence
should [be] borne” by the taxpayer. Id. at
732. This burden differentiates this case from a typical
motion for summary judgment, in which the movant must
establish an absence of genuine disputes of material fact to
prevail (even if the non-movant is silent).
if Hartman can produce evidence to show a genuine issue of
material fact as to whether he can overcome the presumption
that the Government's assessment is correct, this
suffices to spare him from summary judgment. See,
e.g., Lewis v. United States, 336 F. App'x
535, 538 & n.1 (6th Cir. 2009). In other words, even if
the Government fails to definitively prove a necessary
element, it will still prevail - unless Hartman creates a
fact question using his own evidence. All evidence must still
be considered in the light most favorable to the nonmoving
party. See Kinnie v. United States, 994 F.2d 279,
282 (6th Cir. 1993).