United States District Court, E.D. North Carolina, Western Division
ORDER
JAMES
C. DEVER III, UNITED STATES DISTRICT JUDGE
On
January 26, 2017, ABL & Associates Plumbing, Inc.
("ABL" or "plaintiff) filed a corrected
complaint against the United States of America ("United
States" or "defendant") seeking refunds of
penalties that it paid pursuant to 26 U.S.C. § §
6651 and 6656 for failure to timely deposit and pay its
federal employment taxes for the fourth quarter of 2011 and
the first quarter of 2012 [D.E. 8]. On August 8, 2017, the
United States answered the corrected complaint [D.E. 15]. On
September 24, 2018, the United States moved for summary
judgment [D.E. 25] and filed a memorandum [D.E. 25-1] and
exhibits [D.E. 25-2-25-12] in support On November 26, 2018,
ABL responded in opposition [D.E. 31] and filed a statement
of material facts [D.E. 32] and supporting documents [D.E.
33]. On February 11, 2019, the United States replied [D.E.
42]. As explained below, the court grants the United
States' motion for summary judgment.
I.
ABL is
a family-owned plumbing, fire protection, and HVAC contractor
in Raleigh, North Carolina. See [D.E. 25-1] ¶ 1. ABL has
four principal owners ("owners" or
"principals"): Salvatore Lampuri, Concetto Lampuri,
Anthony Lampuri, and Anthony Joseph Lampuri. Id. ABL
primarily performs construction work for municipalities. See
Id. ¶ 2. ABL "procures most of its work
through bidding on contracts." Id.; see Ex. A
[D.E. 25-3] 6-7.
ABL
began to experience financial hardship in 2010 as a result of
the economic downturn and housing market collapse. See [D.E.
25-1] ¶ 3; Ex. A [D.E. 25-3] 8-9. Because of "the
failure of the housing market[, ]" residential and light
commercial contracting firms began to compete with ABL for
bids on the kinds of projects that ABL typically completed.
[D.E. 25-1] ¶ 3. Although ABL continued to win bids in
2010, its profit "margins" on those bids had
decreased. Ex. A [D.E. 25-3] 9; see [D.E. 25-1] ¶ 3.
Many of the contracts that ABL won in 2010 were for work to
be performed in 2011 and thus were unprofitable. See [D.E.
25-1] ¶ 3.
In
2011, ABL completed two contracts that it won in 2010 at a
substantial loss. See [D.E. 25-1] ¶ 5. On the first
project, which ABL completed for the North Carolina
Department of Environmental and Natural Resources, ABL lost
approximately $400, 000. See id.; Ex. A [D.E. 25-3]
25-26. On the second project, which ABL completed for Western
Carolina University, ABL lost approximately $300, 000. See
[D.E. 25-1] ¶ 6; Ex. A [D.E. 25-3] 15-16. Additionally,
general contractors struggled to pay ABL on time, further
worsening ABL's cash flow problem. See Ex. A [D.E. 25-3]
9; [D.E. 31] 4; cf [D.E. 25-1] ¶ 9.
In
response to these financial difficulties, ABL reduced its
staff from approximately 145 employees to 105 employees. See
[D.E. 25-1] ¶ 7; Ex. A [D.E. 25-3] 12. ABL also
eliminated vehicle allowances for its principals
(approximately $1, 000 per month per principal) and
eliminated their salaries for approximately three or four
months. See [D.E. 25-1] ¶ 7; Ex. A [D.E. 25-3] 17-18. In
addition, ABL's principals loaned $1, 080, 581.47 to ABL
between February 3, 2011, and September 22, 2011.
See[D.E.25-l] ¶8; Ex. B [D.E.25-4]. However, ABL
"only produced three promissory notes executed between
Salvatore Lampuri and ABL for $200, 000, $60, 000, and $29,
000." [D.E. 25-1] ¶ 8; see Ex. A [D.E. 25-3] 20;
Ex. C [D.E. 25-5] (promissory installment notes executed by
ABL for $200, 000.00, $60, 000.00, and $29, 600.00).
Salvatore Lampuri testified that the principals did not
execute promissory notes because ABL is a "family
business." Ex. A [D.E. 25-3] 20. ABL sought a Small
Business Administration ("SBA") loan in August
2012, after it had failed to deposit and file its federal
employment taxes, but the SBA denied the loan. See
[D.E. 25-1] ¶ 14; see Ex. A [D.E. 25-3] 21-22. ABL
"did not apply for loans with other financial
institutions." [D.E. 25-1] ¶ 14; see Ex. A [D.E.
25-3] 22.
By
2011, despite ABL's obligations to collect, account for,
and pay federal employment taxes, ABL's principals
decided to cease paying the company's payroll taxes to
reduce expenses. See [D.E. 25-1] ¶¶ 9, 16; Ex. A
[D.E. 25-3] 10-11, 18-19. ABL "contacted ADP, its
payroll processor, and instructed ADP to cease paying over
the trust fund portion of the federal employment taxes
due." [D.E. 25-1] ¶ 9. ABL failed to timely deposit
and pay all of its federal employment taxes for me quarterly
tax period ending on December 31, 2011 (the 'Tourth
quarter of 2011") and for the quarterly tax period
ending on March 31, 2012(me''first quarter of
2012''). See[D.E.25-1] ¶¶10, 17-20. For the
fourth quarter of 2011, ABL's tax liability was $169,
820.20, and the Internal Revenue Service ("IRS")
assessed ABL a federal tax deposit penalty of $25, 473.01 and
a failure to pay tax penalty of $13, 585.61. See [D.E. 25-1]
¶¶ 17-18; Ex. H [D.E. 25-10]. For the first quarter
of 2012, ABL's tax liability was $231, 384.97. See [D.E.
25-1] ¶ 19; Ex. I [D.E. 25-11] 2. ABL timely paid $106,
792.00 of its tax liability for the first quarter of 2012,
and the IRS assessed a federal tax deposit penalty of $18,
688.92, a failure to pay tax penalty of $6, 229.64, and a
late filing penalty of $5, 606.68. See [D.E. 25-1] ¶ 20;
Ex. I [D.E. 25-11]. ABL "paid all assessed federal
employment taxes, penalties, and interest for both the fourth
quarter of 2011 and the first quarter of 2012 by November 27,
2012." [D.E. 25-1] ¶21; see Ex. H [D.E. 25-10]; Ex.
I [D.E. 25-11].
Although
ABL "hoped to pay [its] employment taxes on a quarterly
basis... each time the taxes came due, events intervened to
compel ABL to pay a creditor other than the IRS." [D.E.
25-1] ¶ 10. In the fourth quarter of 2011, ABL had 127
employees and paid $883, 782.43 in wages, including $12,
806.82 to one of its principals. See [D.E. 25-1] ¶ 12;
Ex. E [D.E. 25-7]. Between January 1, 2012, and March 31,
2012, ABL "paid at least $1, 759, 430 to its various
vendors and suppliers," $25, 000 to its lawyers, and
$47, 100 to its accountants. [D.E. 25-1] ¶ 11; Ex. D
[D.E. 25-6]. In the second quarter of 2012, ABL had 117
employees and paid $1, 024, 655.00 in wages, including
approximately $200, 000 to its four principal owners. See
[D.E. 25-1] ¶ 13; Ex. F [D.E. 25-8]. Despite its cash
flow problems, ABL "has not been sued by any of its
vendors of subcontractors for nonpayment" [D.E. 25-1]
¶ 15; Ex. A [D.E. 25-3] 23.[1] Additionally, ABL did not
begin repaying the loans from its principals until 2014. See
Ex. A [D.E. 25-3] 20-21.
On
October 15, 2014, ABL filed an administrative claim "for
an abatement of penalties for both tax periods with the
IRS." [D.E. 25-1] ¶ 22; see [D.E. 8-2]. On December
15, 2014, the IRS denied ABL's request "citing alack
of substantiation and documentation to support ABL's
claims." [D.E. 25-1] ¶ 23; see [D.E. 8-3]. On
February 11, 2015, ABL timely appealed the IRS's denial.
See [D.E. 25-1] ¶ 24; [D.E. 8-4]. On July 26,
2016, the IRS denied ABL's appeal "again citing a
lack of substantiation and documentation." [D.E. 25-1]
¶ 25; see [D.E. 8-5]. On November 23, 2016, ABL filed
its complaint, and, on January 26, 2017, ABL filed its
corrected complaint. See [D.E. 1]; [D.E. 8]; [D.E. 25-1]
¶ 26. On February 7, 2018, the United States sent
interrogatories to ABL, but ABL "provided no formal
response to these [i]nterrogatories and provided the United
States with only limited documentation of its claims
inresponse." [D.E. 25-1] ¶ 27; Ex. J [D.E.
25-12];[D.E.32] ¶27.
II.
Summary
judgment is appropriate when, after reviewing the record as a
whole, the court determines that no genuine issue of material
fact exists and the moving party is entitled to judgment as a
matter of law. See Fed.R.Civ.P. 56(a); Anderson v.
Liberty Lobby. Inc., 477 U.S. 242, 247-48 (1986). The
party seeking summary judgment must initially demonstrate the
absence of a genuine issue of material fact or the absence of
evidence to support the nonmoving party's case. See
Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). Once
the moving party has met its burden, the nonmoving party may
not rest on the allegations or denials in its pleading, see
Anderson, 477 U.S. at 248-49, but "must come
forward with specific facts showing that there is a genuine
issue for trial." Matsushita Elec. Indus. Co. v.
Zenith Radio Corp., 475 U.S. 574, 587 (1986) (emphasis
and quotation omitted). A trial court reviewing a motion for
summary judgment should determine whether a genuine issue of
material fact exists for trial. See Anderson, 477
U.S. at 249. In making this determination, the court must
view the evidence and the inferences drawn therefrom in the
light most favorable to the nonmoving party. See Scott v.
Harris, 550 U.S. 372, 378 (2007).
A
genuine issue of material fact exists if there is sufficient
evidence favoring the nonmoving party for a jury to return a
verdict for that party. See Anderson, 477 U.S. at
249. "The mere existence of a scintilla of evidence in
support of plaintiffs position [is] insufficient"
Id. at 252; see Beale v. Hardy, 769 F.2d
213, 214 (4th Cir. 1985) ("The nonmoving party, however,
cannot create a genuine issue of material fact through mere
speculation or the building of one inference upon
another."). Only ...