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United States v. Appelbaum

United States District Court, W.D. North Carolina, Statesville Division

September 19, 2014

UNITED STATES OF AMERICA, Plaintiffs,
v.
ERIC APPELBAUM, Defendant

Page 371

For United States of America, Plaintiff, Counter Defendant: Melissa Dickey, United States Department of Justice, Tax Division, Washington, DC.

For Eric Appelbaum, Defendant, Counter Claimant: William R. Terpening, LEAD ATTORNEY, Nexsen Pruet, PLLC, Charlotte, NC.

Page 372

ORDER

Richard L. Voorhees, United States District Judge.

THIS MATTER is before the Court on the United States' Motion to Dismiss Counterclaims and to Strike Defenses 1, 2, 4, 6, 7, and 9. (Doc. 9). Defendant Eric Appelbaum filed his Brief in Opposition on June 17, 2013, (Doc. 10), to which the United States filed a Reply on June 27, 2013 (Doc. 12). This matter is ripe for disposition.

NATURE OF THE CASE

The United States instituted the instant action alleging that Warde Electric Contracting, Inc. (" Warde Electric" ) did not properly collect, account, or pay over Federal withholding and Federal Insurance Contribution Act (" FICA)" taxes. (Doc. 1, ¶ ¶ 7, 11). The United States seeks to recover these taxes from Eric Appelbaum individually pursuant to 26 U.S.C. § 6672. (Doc. 1, ¶ ¶ 8-11). The United States alleges that it is entitled to recover the amount

Page 373

of the assessments made on April 10, 2013 and accrued interests and costs. (Doc. 1, ¶ ¶ 11, 15-16). Defendant denies he is the responsible party and that he is liable. (Doc. 8, ¶ ¶ 7-16). Defendant has asserted two counterclaims and nine defenses which the Court will address in greater detail below. While Defendant was originally appearing pro se, he has been represented by counsel since May 9, 2014. (Doc. 13).

ANALYSIS

I. The United States' Motion to Dismiss Defendant's Counterclaims is Granted

The United States has moved to dismiss both of Defendant's counterclaims for lack of subject matter jurisdiction and for failure to state a claim. (Doc. 9). For the reasons stated below, the Court dismisses both counterclaims.

A. Legal Standard

Federal Rule of Civil Procedure 12(b)(1) allows a party to move for dismissal where the court lacks jurisdiction over the subject matter of the action. A party " may challenge subject matter jurisdiction in one of two ways." Kerns v. United States, 585 F.3d 187, 192 (4th Cir. 2009). The first way is to argue " that a complaint simply fails to allege facts upon which subject matter jurisdiction can be based." Id. (quoting Adams v. Bain, 697 F.2d 1213, 1219 (4th Cir. 1982)). In this type of facial challenge, the non-movant receives procedural protection akin to a motion under 12(b)(6) in that all allegations are taken as true. Id. The second way to challenge subject matter is to argue that the allegations of the non-movant are not true. Id.

Here, the United States' motion challenges subject matter jurisdiction under the former approach so Defendant will be given procedural protections equivalent to those found in the 12(b)(6) case law.

Under a motion to dismiss under 12(b)(6), the court must accept as true all factual allegations in the counterclaim, Erickson v. Pardus, 551 U.S. 89, 94, 127 S.Ct. 2197, 167 L.Ed.2d 1081 (2007) (per curiam), and all reasonable inferences must be drawn in the non-movants favor, Ibarra v. United States, 120 F.3d 472, 474 (4th Cir. 1997). This requirement applies only to facts, not legal conclusions, however. Ashcroft v. Iqbal, 556 U.S. 662, 678-79, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009).

Under Federal Rule of Civil Procedure 8(a)(2), a pleading must contain a " short and plain statement of the claim showing that the pleader is entitled to relief." Although the complaint need only " give the defendant fair notice of what the . . . claim is and the grounds upon which it rests," this obligation " requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Bell A. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (citations omitted). Further, a pleading must include " a demand for the relief sought." Fed.R.Civ.P. 8(c).

Rule 12(b)(6) protects against meritless litigation by requiring sufficient factual allegations " to raise a right to relief above the speculative level" so as to " nudge[ ] the[ ] claims across the line from conceivable to plausible." Twombly, 500 U.S. at 555, 570; see Iqbal, 556 U.S. at 662. Under Iqbal, the court performs a two-step analysis. First, it separates factual allegations from allegations not entitled to the assumption of truth (i.e., conclusory allegations, bare assertions amounting to nothing more than a " formulaic recitation of the elements" ). Second, it determines whether the factual allegations, which are accepted as true,

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" plausibly suggest an entitlement to relief." 556 U.S. at 681.

The Court notes that " [a] document filed pro se is 'to be liberally construed' . . . [and] 'must be held to less stringent standards than formal pleadings drafted by lawyers.'" Erickson v. Pardus, 551 U.S. 89, 94, 127 S.Ct. 2197, 167 L.Ed.2d 1081 (quoting Estelle v. Gamble, 429 U.S. 97, 106, 97 S.Ct. 285, 50 L.Ed.2d 251 (1976)). The Court does not pass on whether Defendant's subsequent retention of counsel obviates the need for this construction but recalls that Erickson does not " undermine Twombly' s requirement that a pleading contain 'more than labels and conclusions.'" Giarratano v. Johnson, 521 F.3d 298, 304 n.5 (4th Cir. 2008) (quoting Twombly, 550 U.S. at 555).

B. The United States' Motion to Dismiss Defendant's First Counterclaim is Granted

Defendant's First Counterclaim is contained in paragraph 26 of his answer and states that the Internal Revenue Service (" IRS" ) chose " not to proceed with its Claim . . . against the Surety for Payroll Taxes, but instead made a motion to convert Warde Electric's Chapter 11 Bankruptcy" which was subsequently granted. (Doc. 8, ¶ 26). Defendant alleges that because of the IRS' actions he " was left with no chance of ever being paid back personal loans that were made to Warde Electric . . . [and he] suffered substantial personal losses in the amount of $ 2,000,000.00." (Doc. 8, ¶ 26). The counterclaim further alleges that the surety could have paid the taxes and this would have allowed Warde Electric " to submit a restructuring plan to the Bankruptcy Court." (Doc. 8, ¶ 26). After receiving the United States' motion to dismiss characterizing the counterclaim as a laches defense, Defendant stated that " [t]his is a claim under Internal Revenue Code Section 7433." (Doc. 10, 4).

1. Defendant's First Counterclaim Fails to State a Claim under 26 U.S.C. § 7433

The Court notes that Defendant may not amend his pleading by the use of a Response.[1] Nowhere in Defendant's counterclaim does Defendant raise the issue of 26 U.S.C. § 7433. Even if the Court construes Defendant's first counterclaim in this manner, it fails to state a claim.

26 U.S.C. § 7433(a) provides, in pertinent part, that:

If, in connection with any collection of Federal tax with respect to a taxpayer, any officer or employee of the Internal Revenue Service recklessly or intentionally, or by reason of negligence, disregards any provision of this title, or any regulation promulgated under this title, such taxpayer may bring a civil ...

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