United States District Court, Middle District of Pennsylvania
May 29, 1991
DEAN A. COOK, PLAINTIFF,
UNITED STATES OF AMERICA, DEFENDANT AND THIRD PARTY PLAINTIFF, V. NICHOLAS SPITHOGIANIS, AND LAWRENCE L. CIRILLO, THIRD PARTY DEFENDANTS.
The opinion of the court was delivered by: Caldwell, District Judge.
This action arises pursuant to Section 6672 of the Internal
Revenue Code (26 U.S.C. § 6672), which imposes penalties for
failure of responsible persons to collect and pay over taxes to
the United States. Plaintiff, Dean A. Cook, filed a complaint
against the United States of America, to recover an amount paid
in partial satisfaction of a § 6672 assessment against him,
which he alleges was improperly administered.
The Government responded with a counterclaim against Cook to
enforce judgment and collect the balance of the assessment.
Additionally, the Government filed a third-party complaint
against defendants, Lawrence L. Cirillo and Nicholas
Spithogianis, to reduce to judgment assessments imposed on them
under § 6672. Cook and Cirillo, in turn, filed separate
cross-claims against Spithogianis, seeking indemnity or
contribution in the event judgment is entered against them.
Each allege that Spithogianis was the person responsible for
withholding taxes, and Cirillo contends that Spithogianis also
contracted to indemnify him.
Pending is the Government's motion to strike the cross-claims
of Cook and Cirillo on the grounds that this Court lacks
subject matter jurisdiction over them pursuant to Rule 12(h)(3)
of the Federal Rules of Civil Procedure. The Government's
central contention is that there is no federal common law or
statutory right to contribution or indemnity under § 6672.
II. Federal Right to Contribution or Indemnity under § 6672
It is well settled that an individual subject to a tax
assessment pursuant to § 6672 has no federal common law or
statutory right of action for contribution or indemnity against
another individual who may also be so liable. DiBenedetto v.
United States, 75-1 U.S. Tax Cas. para. 9503, 1974 WL 791
(D.R.I., 1974); Padalino v. United States v. Murray, et al.,
1989 WL 154322, 1989 U.S. Dist. LEXIS 13,543, 89-2 U.S. Tax
Cas. para. 9632 (D.C.N.J. 1989); Swift v. Levesque, 614 F. Supp. 172
(D.C.Conn. 1985); Rebelle v. United States, 588 F. Supp. 49
(M.D.La. 1984); Schoot v. United States, 664 F. Supp. 293
(N.D.Ill. 1987); Moats v. United States, 564 F. Supp. 1330
(W.D.Mo. 1983); Hanhauser v. United States, 85 F.R.D. 89
(M.D.Pa. 1979). The Government contends that neither Cook nor
Cirillo have asserted any independent grounds for this Court's
jurisdiction over those claims. "[I]t has been consistently
recognized in the federal courts that where an action is
patently without merit, a federal court may dismiss such an
action for want of subject matter jurisdiction." Carver v.
England, 599 F.2d 1055 (6th Cir. 1979); Duke Power Co. v.
Carolina Environmental Study Group, 438 U.S. 59, 70, 98 S.Ct.
2620, 2628, 57 L.Ed.2d 595 (1978); Studen v. Beebe,
588 F.2d 560, 566 (6th Cir. 1978).
A. Public Policy Considerations
First, regardless of the alleged existence of diversity or
ancillary jurisdiction in this matter, we are convinced that
there is a clearly defined public policy which disfavors
allowing claims of contribution or indemnity to interfere with
the tax collection process under § 6672. The majority of
jurisdictions express a genuine concern "to avoid complicating
the Government's action to collect the § 6672 penalty with
collateral litigation between the parties." Schoot, supra, 664
F. Supp. at 298. "The practice and procedures developed over the
years to test the validity of a § 6672 assessment were not and
are not designed for and should not be complicated by
collateral litigation that may be instituted by and between
various persons who may be determined to be `responsible
persons' in a particular case." Moats, supra, 564 F. Supp. at
Rather, the primary purpose of § 6672 is to "ensur[e] that
the tax which is unquestionably owed to the government is
paid." Feist v. United States, 607 F.2d 954, 957, 221 Ct.Cl.
531 (1979); Botta v. Scanlon, 314 F.2d 392, 393 (2d Cir. 1963).
Clearly, the "statute serves as a collection device for the
government, and not as a source of a cause of action between or
among persons found to be `responsible' parties." Swift, supra,
614 F. Supp. at 173.
Additionally, § 6672 has been construed by several courts as
penal in nature. Thus, to allow parties to recover from other
responsible persons would greatly hinder the deterrent purpose
of the statute. "[W]ithout the possibility that any one of
several responsible persons might be held solely accountable
for a penalty imposed without benefit of contribution, little
incentive would exist for anyone to act in accordance
with the law by coming forward sua sponte to pay or account for
the taxes in question." Continental Illinois Nat. Bank & Trust
Co. v. United States, 87-2 U.S. Tax Cas. para. 9442, at 89,245,
1987 WL 12206 (N.D.Ill. 1987). As the District Court in Rebelle
A `responsible persons' resolve to willfully fail
to collect such taxes may be weakened when faced
with the possibility of bearing all of the 100%
penalty than it would be if there was a right to
spread and diversify this burden or risk among the
group. The need for government action is obviated
if only one potentially liable person in a group
of potentially liable people acts properly. The
risk of bearing this penalty alone may bring that
one person to the forefront a little more readily,
and thus save the government the additional
Id. 588 F. Supp. at 51.
Finally, any party liable under § 6672 must necessarily be
found to have "willfully" failed to collect or truthfully
account for and pay over taxes to the Government. § 6672(a).
Under the general principles of contribution and indemnity, a
person who acts willfully cannot seek contribution. Hanhauser,
supra, 85 F.R.D. at 92; Rebelle, supra, 588 F. Supp. at 51;
Continental, supra; Cohen v. United States, 75-1 U.S. Tax Cas.
para. 9391, at 86,967, 1975 WL 556 (E.D.Mich. 1975);
DiBenedetto, supra; Cage v. New York C. Railroad Co.,
276 F. Supp. 778 (W.D.Pa. 1967), aff'd, 386 F.2d 998 (3d Cir. 1967);
Rhoads v. Ford Motor Co., 374 F. Supp. 1317 (W.D.Pa. 1974),
aff'd, 514 F.2d 931 (3d Cir. 1975). Thus, based upon these
policy considerations, we have no subject matter jurisdiction
over the cross-claims in question.
B. State Law Right to Contribution or Indemnity Under § 6672
Cook does not dispute that there is no federal common law
right to contribution or indemnity under § 6672. However, he
argues that such right exists pursuant to Pennsylvania law.
Regardless of whether a state claim exists, it is well settled
that a federal court lacks subject matter jurisdiction to
consider a state claim for indemnity or contribution at the
same time as the Government's § 6672 penalty enforcement
action. Schoot, supra, 664 F. Supp. at 298; Schoot, 664 F. Supp.
at 297; Swift, 614 F. Supp. at 176; Garity, 46 A.F.T.R.2d
80-5143, 1980 WL 1546. These courts have consistently directed
parties seeking indemnity or contribution in a § 6672 federal
action to file a separate state claim in a subsequent
proceeding. Schoot, 664 F. Supp. at 298; Swift, 614
F. Supp. at 177; Padalino, supra (the Court refused to decide
whether New Jersey state courts would allow contribution or
indemnity in § 6672 actions and held that the issue should be
brought to state court).
"[T]here is no subject matter jurisdiction for [federal
courts] to consider  actions grounded upon state law in the
same action where the government seeks enforcement of its
section 6672 penalties." Schoot, supra, 664 F. Supp. at 297.
Further, in accordance with indicated policy considerations,
that a state law permits "contribution between responsible
persons under § 6672 in no way inhibits the efficient
collection of taxes owed to the government, provided the claim
of contribution is brought as an action separate from that
brought by the IRS pursuant to § 6672." Id. quoting Swift,
supra, 614 F. Supp. at 177; DiBenedetto, supra (third-party
defendant may not implead another defendant for contribution or
even to obtain "exculpatory facts"). As stated by the Court in
Schoot, "We believe that the Swift approach which allows a
party to institute a separate action for indemnity or
contribution after the IRS action is completed is the better
approach to take." Schoot, supra, 664 F. Supp. at 297.*fn1 Cook
counters that a state claim for contribution may in fact be
considered in federal court at the same
time as a § 6672 action according to Swift, supra, 614 F. Supp.
In Swift the Court held that according to Connecticut law the
parties were entitled to contribution for § 6672 tax
assessments under specific circumstances. However, we find that
the Court would not have applied state law unless the parties
asserted a state law right to contribution in their
cross-claims and original complaint. In the present action,
Cook did not allege a state law right to contribution or
indemnity in his pleadings, doing so for the first time in his
opposing brief. By implication under § 6672 and pursuant to
applicable case law, a state law right to indemnity or
contribution must be asserted in the pleadings. Otherwise, a
cross-claim for indemnity and contribution must be viewed under
federal statutory and common law and must therefore be
dismissed for lack of subject matter jurisdiction. In Padalino,
supra, the Court dismissed a § 6672 claim for contribution and
indemnity against all third party defendants, stating:
Padalino bases his third-party complaint against
third-party defendants on sec. 6672, the federal
law provision under which the United States seeks
payment for taxes from Padalino. . . . According
to his complaint, Padalino does not seek
contribution or indemnity under any other federal
statute or any state law. . . . Because there is no
mention of state law in Padalino's third-party
complaint, I cannot infer state law claims from the
complaint. . . . Although in his most recent
opposition brief Padalino argues that New Jersey
state law would recognize a private right of
contribution, Padalino does not allege a violation
of the New Jersey statute in his complaint, nor
does he move to amend his complaint to include
Id. (emphasis added).
Similarly, in Seachrist v. Riggs, 1990 WL 260538, 1990 U.S.
Dist. LEXIS 17844, 91-1 U.S. Tax Cas. para. 50,019 (N.D.W. Va.
1990), the plaintiff attempted to maintain an action for
contribution in federal court under state law. The Court
rejected Seachrist's contentions stating:
[T]he present action is couched in federal terms.
No pendent state claims were alleged in the
original complaint and no West Virginia statute
has been cited in support of jurisdiction for
either indemnity or contribution in this Court.
The Court has reviewed the legal authority on this
subject and finds that any action for indemnity or
contribution under these facts must arise under
federal law. The Court further finds, in
accordance with, e.g., DiBenedetto v. United
States, 1975-1 U.S. Tax Cas. (CCH) para. 9395
(D.Md. 1978), that there is no federal statutory
authority that would permit Plaintiff Seachrist to
seek indemnity from the [defendants]. Additionally,
the Court finds that there is no common law rule
that should permit Seachrist to seek indemnity from
[defendants]. See DiBenedetto, supra; Hanhauser v.
United States, 85 F.R.D. 89, 92 (M.D.Pa. 1979).
Accordingly, the Court lacks subject matter
jurisdiction over Seachrist's complaint against the
Based upon the above precedent, we are constrained to view
Cook's cross-claim as one raised under federal statutory and
common law and thus this court has no jurisdiction over it.
III. Contractual Right to Indemnity
As to third-party defendant, Cirillo, he agrees with Cook
that there is no federal statutory or common law right to
indemnity or contribution under § 6672. However, Cirillo
contends that he is entitled to indemnity from Spithogianis due
to the existence of an indemnity agreement between them.*fn2
Cirillo alleges that he and Spithogianis entered into a written
agreement whereby Spithogianis would indemnify him for any tax
assessment rendered against him.
A federal court may, in some instances, have jurisdiction
over a claim which seeks indemnity based upon a breach of
contract. Garity, supra, 80-1 U.S. Tax Cas. para. 9407, 1980 WL
1546 (E.D.Mich. 1980); DiBenedetto, supra; Barker v. United
States, 72-1 U.S. Tax Cas. para. 9225, 1972 WL 379 (E.D. Okla.
1972); and Cantlon v. Ernce, 37 A.F.T.R.2d 76-1238 (N.D.Ill.
1976). However, such jurisdiction exists only upon sufficient
evidence of an actual indemnity agreement. Barker, supra (the
court concluded "by virtue of the indemnity agreement that the
parties are jointly and severally liable to the Government for
In the instant case, the letter which Cirillo refers to as
"the agreement" states absolutely nothing from which we may
infer that a contract of indemnity exists. The letter implies
only that Spithogianis is aware of the individual consequences
to himself in the event his retention of taxes is discovered.
We are not persuaded that the letter in any way reveals an
intent by Spithogianis to hold Cirillo harmless should an
assessment be filed against him.*fn3
Moreover, several courts have held that indemnity contracts
violate public policy under § 6672. "[W]hen a person willfully
acts and has a penalty assessed pursuant to section 6672 that
person should not and must not have that liability for the
penalty shared or placed wholly on another because of some
contractual or fiduciary duty." Rebelle, supra, 588 F. Supp. at
52. Cirillo relies heavily upon Garity, supra, which has been
sharply criticized as "unsound and unsupported by the
jurisprudence or by congressional intent." Continental, supra.
We conclude that Cirillo has failed to allege an independent
jurisdictional basis to overcome established policy concerns.
IV. Alleged Defects in the Government's Motion
In their opposing briefs, Cook and Cirillo assert several
grounds upon which they argue Government's motion must be
denied. First, both parties contend that the Government lacks
standing to file a motion to strike a cross-claim which is not
directed against it. Cirillo states that "the Government lacks
any real stake in the outcome of the cross-claim[s] so as to
entitle it to assert the motion it presently seeks to place
before the court." While this contention appears plausible, it
is incorrect. Rule 12(h)(3) provides:
Whenever it appears by suggestion of the parties
or otherwise that the court lacks jurisdiction of
the subject matter, the court shall dismiss the
Such language gives standing to any party to alert the Court
that it lacks subject matter jurisdiction over a certain
When a court learns that it lacks subject matter
jurisdiction, it may not exercise discretion to retain the
claim. Joyce v. United States, 474 F.2d 215, 219 (3d Cir.
1973). "Where there is no jurisdiction over the subject matter,
the court cannot ignore the lack of jurisdiction." Brennan v.
Kaplan, 64 F.R.D. 670, 672 (E.D.Pa. 1974). "[F]ederal courts
are courts of limited jurisdiction and have a continuing
obligation to examine their subject matter jurisdiction
throughout the pendency of every matter before them." In re
Wolverine Radio Co., 930 F.2d 1132, 21 Bankr. Ct. Dec. 932 (6th
Cir. 1991). Further, a "district court must dismiss a claim sua
sponte if it lacks subject matter jurisdiction, even if parties
do not raise the issue." Church of Scientology v. United
States, 920 F.2d 1481, 1490 (9th Cir. 1990); citing Bender v.
Williamsport Area School Dist., 475 U.S. 534, 541, 106 S.Ct.
1326, 1331, 89 L.Ed.2d 501 (1986).
Cook and Cirillo contend that under Rule 12(b)(6) of the
Federal Rules of Civil Procedure, a party raising a
must be adverse to the claim he seeks to dismiss. Specifically,
Cirillo suggests that we view the Government's motion as one
pursuant to 12(b)(6) for failure to state a claim, as opposed
to 12(h)(3).*fn5 We acknowledge that under 12(b)(6), the party
asserting the motion must be adverse to the party it seeks to
dismiss, unless the court in its discretion decides to strike
a pendant matter. We also recognize that certain jurisdictions
have in fact dismissed § 6672 cross-claims for indemnity and
contribution as violative of 12(b)(6). However, we defer to the
majority of applicable cases which have dismissed cross-claims
for indemnity or contribution because of a lack of subject
matter jurisdiction. Schoot, supra, 664 F. Supp. at 298,
Seachrist, supra, DiBenedetto, supra, and will view the
relevant cross-claims accordingly.
B. Ancillary Jurisdiction
Second, Cook and Cirillo contend that this Court has
ancillary jurisdiction over the cross-claims in question,
because they arise from the same transaction or occurrence that
is the subject matter of the original action or the
Government's counterclaim. Pursuant to Rule 13(g) of the
Federal Rules of Civil Procedure, a district court may
adjudicate a cross-claim due to its relationship to the
original action for which federal jurisdiction is proper, even
where an independent basis for jurisdiction over the
cross-claim is lacking. Transcontinental Underwriters Agency,
S.R.L. v. American Agency Underwriters, 680 F.2d 298
However, it is well established that ancillary jurisdiction
does not extend to impleader claims for contribution or
indemnity, unless an independent basis exists for federal court
jurisdiction. See, Aetna Casualty & Surety Co. v. Spartan
Mechanical Corp., 738 F. Supp. 664 (E.D.N.Y. 1990). "A Court
does not have subject matter jurisdiction over  third-party
claims for contribution or indemnity as they lack an
independent jurisdictional basis and are not within ancillary
jurisdiction." Id. (district court lacked ancillary
jurisdiction over defendant's third party breach of contract
claims for indemnity and contribution).*fn6 Further, the rules
regarding pendant jurisdiction have "arguably sound[ed] a death
knell for ancillary jurisdiction over third-party claims for
indemnity and contribution." Community Coffee Co. v. M/S Kriti
Amethyst, 715 F. Supp. 772 (E.D.La. 1989).
C. Diversity Jurisdiction
Finally, Cook alleges for the first time in his brief that
there is an independent basis for this Court's jurisdiction
over his cross-claim, i.e. diversity of citizenship under
28 U.S.C. § 1332. Plaintiff's complaint and cross-claim contain no
allegation of diversity of citizenship as required by Rule
8(a)(1) of the Federal Rules of Civil Procedure. We acknowledge
that a "court's discretion to dismiss for lack of subject
matter jurisdiction when the plaintiff could have pleaded the
existence of jurisdiction and when in fact jurisdiction exists,
should be exercised sparingly." Hoefferle Truck Sales, Inc. v.
Divco-Wayne Corp., 523 F.2d 543
, 549 (7th Cir. 1975). However,
in this case at the time the complaint and cross-claim were
filed, there was no indication that a state law claim for
indemnity or contribution would be raised. Therefore, diversity
jurisdiction would not have been applicable at
the time the cross-claim was filed. Regardless of whether
diversity of citizenship is established in this matter there
must be an "actual controversy" which the diversity statute may
control. Precision Shooting Equipment Co. v. Allen,
646 F.2d 313
(7th Cir. 1981). As indicated, Cook failed to allege a
state claim for contribution or indemnity in his pleadings and
we must construe his claim under federal law, to which
diversity does not apply.*fn7
We conclude that Cook and Cirillo have failed to establish
that they are entitled to pursue cross-claims for indemnity or
contribution against Spithogianis in this forum. We therefore
lack jurisdiction over their claims and will dismiss them in an
AND NOW, this 29th day of May, 1991, upon consideration of
the motion to strike of defendant and third-party plaintiff,
the United States of America, filed on March 29, 1991, it is
ordered that the motion is granted. It is further ordered that
the cross-claims of plaintiff, Dean A. Cook, and third-party
defendant, Lawrence Cirillo, against third-party defendant,
Nicholas Spithogianis, are dismissed without prejudice.