United States District Court, E.D. New York
Frank Agostino, Jeremy Klausner, Agostino & Associates, P.C., Hackensack, NJ, for Plaintiff.
Bartholomew Cirenza, Christina Bixby, U.S. Department of Justice, Washington, DC, for Defendant and Counter-Claimant.
Ralph G. Reiser, Syosset, NY, for Counter-Defendants.
MEMORANDUM AND ORDER
GLASSER, Senior District Judge.
Plaintiff Dvora Skoczylas (" Skoczylas" or " plaintiff" ) brings this action to abate a trust fund recovery penalty that the Internal Revenue Service (" IRS" ) assessed against her pursuant to § 6672 of the Internal Revenue Code of 1986, as amended (the " Code" ), and to recover partial payments she made to satisfy this penalty. The government brings counterclaims against both Skoczylas and John Breen (" Breen" ) for full payment of assessed tax penalties with interest. Currently before the Court are motions and cross-motions for summary judgment by all parties. For the reasons that follow, Skoczylas' motion is DENIED, the government's motion against Skoczylas is DENIED, Breen's motion is GRANTED in part and DENIED in part, and the government's motion against Breen is GRANTED in part and DENIED in part.
Unless otherwise noted, the following facts are undisputed. Long Island Health Associates Corp. (" LIHAC" ) was formed in 1996 with two shareholders, Dr. Irwin Mansdorf and Dr. Tali Skoczylas, plaintiff's husband, to acquire Hempstead General Hospital (" HGH" ) out of bankruptcy. Certification of Jeremy M. Klausner dated Mar. 19, 2012 (" Klausner Cert." ), Ex. 1 (Lanzafame Dep.), at 8-14, 19; Ex. 3 ¶ 2 (Dkt. Nos. 26-4, 26-6). Shortly thereafter, Dr. Skoczylas transferred his 50% stake in LIHAC to his wife, the plaintiff (hereinafter " Skoczylas" ), for no consideration. Id., Ex. 1 (Lanzafame Dep.), at 19-20; Ex. 4 (Skoczylas Dep.), at 16. After acquiring the shares, Skoczylas served on LIHAC's Board of Directors as Chairman or President of the Board. Id., Ex. 4 (Skoczylas Dep.), at 12. Skoczylas received no compensation or reimbursements for her services as a director of LIHAC, and received no dividends from her ownership of LIHAC stock. Dvora Skoczylas' Statement of Material Facts in Support of Motion for Summary Judgment dated Mar. 19, 2012 (" Pl.'s 56.1" ) ¶¶ 37-39 (Dkt. No. 26-1). In 1999, LIHAC completed its acquisition of HGH and changed the hospital's name to Island Medical Center (" IMC" ). Klausner Cert., Ex. 1 (Lanzafame Dep.), at 10-11; Pl.'s 56.1 ¶ 25. In July 2000, Dr. Mansdorf transferred his shares of LIHAC to Skoczylas for no consideration because he was leaving the country, making Skoczylas the 100% shareholder effective November 2, 2000. Pl.'s 56.1 ¶¶ 73-75, 95.
During her tenure as a director of LIHAC, Skoczylas attended every Board meeting. Id. ¶¶ 68-69. At the July 25, 2000 Board meeting, then-Chief Financial Officer (" CFO" ) Walter Schatz (" Schatz" ) " painted a grim picture of LIHAC's financial condition" and " stated that the administration was very concerned with meeting payroll and payroll tax obligations." Id. ¶ 72. In August 2000, LIHAC began to contemplate bankruptcy. Klausner Cert., Ex. 18. At an emergency September 7, 2000 Board meeting, both the Board and management agreed that bankruptcy was the only viable financial option. Pl.'s 56.1 ¶ 85. On October 3, 2000, LIHAC filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code. Id. ¶ 86. From October 2000 through about December 2003, LIHAC operated as a debtor-in-possession. Id. ¶ 96.
As a debtor-in-possession, LIHAC was required to file Monthly Operating Reports (" MORs" ) with the bankruptcy court. Id. ¶ 97. These reports contained tax information, among other things, and were prepared and signed by Schatz from October 2000 through February 2001. United
States' Local Rule 56.1(a) Statement dated Mar. 22, 2012 (" Gov't's 56.1" ) ¶¶ 12-14 (Dkt. No. 27-2). On or about September 1, 2001, Schatz hired Gary Hung (" Hung" ) as LIHAC's Controller and Schatz resigned a few weeks later. Pl.'s 56.1 ¶¶ 102, 104. Hung's staff prepared the MORs for the remainder of the debtor-in-possession period, subject to review by Hung. Declaration of Attorney Reiser dated July 12, 2012 (" Reiser Decl." ), Ex. 7 (Hung Dep.), at 177-79 (Dkt. No. 43-9). Hung officially became CFO around May 2003, but this was merely a title change because " Controller and CFO were the same thing." Pl.'s 56.1 ¶¶ 168, 170.
In September 2001, then-CEO David Bukstel (" Bukstel" ) hired Breen as Chief Operating Officer (" COO" ) to " oversee the clinical operations of the hospital," ensure regulatory compliance, and act as " an assistant to the CEO." Reiser Decl., Ex. 1 (Breen Dep.), at 15-16. In May 2002, Bukstel resigned and Breen was promoted to CEO effective June 1, 2002. Id. As CEO, Breen hired both financial and operations personnel. Although he did not become CEO until June 2002, Breen signed MORs from December 2001 through December 2002 because the MORs from December 2001 through June 2002 were not filed until after he became CEO. Id. at 46-47, 241; Gov't's 56.1 ¶¶ 14, 36.
As Controller, Hung oversaw LIHAC's payroll department from September 2001 through August 2003. Pl.'s 56.1 ¶ 177. Hung's staff prepared, signed, and filed IRS Forms 941 on behalf of LIHAC under his supervision. United States' Local Rule 56.1(b) Statement of Genuine Issues to be Tried dated July 6, 2012 (" Gov't's 56.1 Opp'n" ) ¶ 184 (Dkt. No. 36-1). Hung's staff, also under his supervision, transmitted funds to the IRS for payroll taxes each quarter; if there was a balance of payroll taxes due at the end of the quarter, Hung's staff was supposed to write a check to the IRS to cover it. Id. ¶¶ 185-86. But, during Hung's tenure at the hospital, there were times when there were insufficient funds to cover the payroll taxes. Pl.'s 56.1 ¶ 194. As a result, Hung independently decided that LIHAC should pay its payroll expenses before its payroll taxes during the first three quarters of 2002 and the first two quarters of 2003. Id. ¶ 199. He testified:
Q. What was your testimony?
A. Okay. My testimony was that I paid payroll first and paid the payroll taxes when we can pay them.
Q. But that was your decision; correct?
A. Yes. Because the money was there I had to pay payroll first. Q. Did anyone help you?
A. No. Because payroll had to go first.
Q. So you did make that decision on your own?
A. To pay payroll, yes.
B. Disputed Facts
The parties dispute Breen's knowledge of LIHAC's failure to pay federal payroll taxes in 2002 and 2003. Breen testified that he " had regular discussions with Gary Hung about the hospital's financial condition, which included discussions about all liabilities and specifically the tax liability." Reiser Decl., Ex. 1 (Breen Dep.), at 102. He claims that he had no knowledge of any unpaid federal tax liabilities until late 2003 because of Hung's assurances and the misleading reports Hung prepared. Id. at 103-04; Ex. 3. Breen also testified that he thought payroll taxes were paid because he saw wire transfers to the IRS on operating statements, but was not aware that these were only partial payments by Hung. Id., Ex. 1 (Breen Dep.), at 65-70. Contrarily, Hung claims that he informed Breen at some point in 2002 that taxes were not paid. Id., Ex. 7 (Hung Dep.), at 117. He testified:
Q. What exactly did you say to Mr. Breen at this meeting in his office?
A. That taxes weren't paid. " We're not current with the tax liabilities."
Q. What did Mr. Breen say?
A. He didn't say anything ...