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U.S. v. COOK

March 29, 2004.

UNITED STATES OF AMERICA, Plaintiff,
v.
ROBERT G. COOK and SHARON M. COOK, Defendants



The opinion of the court was delivered by: JAMES KNOLL GARDNER, District Judge

OPINION

This matter is before the court on the Rule 12(b)(1) and (6) Motion to Dismiss Complaint, which motion was filed by defendants on April 14, 2003, and the United States' Cross-Motion for Summary Judgment, which cross-motion was filed June 3, 2003. For the reasons expressed below, we deny defendants' motion, and we grant plaintiff's motion. We enter judgment as follows: 1) in Page 2 the amount of $1,536,787.13 in favor of plaintiff United States of America ("Government") and against defendant Robert G. Cook for the trust fund liability alleged in Count I of the Complaint pursuant to 26 U.S.C. § 6672; 2) in the amount of $191,706.61 in favor of the Government and against defendant Robert G. Cook for the trust fund liability alleged in Count II of the Complaint pursuant to 26 U.S.C. § 6672; and 3) in the amount of $35,138.63 in favor of the Government and against defendants Robert G. Cook and Sharon M. Cook, jointly and severally, for the joint income tax liability alleged in Count III of the Complaint.

  PROCEDURAL BACKGROUND

  Plaintiff commenced this action on December 27, 2002 by filing a Complaint alleging three counts of tax recovery. In its Complaint, plaintiff alleges federal question jurisdiction pursuant to 28 U.S.C. § 1331. In Count I of its Complaint, plaintiff seeks to reduce to judgment the assessment of a civil penalty pursuant to 26 U.S.C. § 6672 against Robert G. Cook related to the trust fund tax delinquencies of Sharob Associates, Inc. ("Sharob Associates"). In Count II, plaintiff seeks to reduce to judgment the assessment of a civil penalty pursuant to 26 U.S.C. § 6672 against Robert G. Cook related to the trust fund tax delinquencies of Sharob Management Company, Inc. ("Sharob Management"). In Count III, plaintiff seeks to reduce to judgment three tax assessments against both Robert G. Cook and Page 3 Sharon M. Cook for their joint income tax delinquencies related to the tax years ending December 1995, December 1997, and December 1999.

  On April 14, 2003, defendants filed their Rule 12(b)(1) and (6) Motion to Dismiss Complaint. On June 3, 2003, plaintiff filed a brief in opposition to defendants' motion as well as the United States' Cross-Motion for Summary Judgment. Defendants filed the Answer of Defendants to United States Cross Motion for Summary Judgment on August 5, 2003, to which plaintiff responded by filing the United States' Reply Brief re: Cross-Motions for Summary Judgment on August 27, 2003.*fn1

  On September 3, 2003, the court conducted a Rule 16 status conference by telephone conference call. During that conference, the court set a discovery and briefing schedule at defendants' request allowing the parties the opportunity to file supplemental briefs by January 9, 2004. Pursuant to that conference, the parties filed the Defendants' Brief on Motion for Summary Judgment and on United States' Cross Motion for Summary Judgment Submitted on or before January 9, 2004 per Court Order, the Supplemental Statement of Facts and Exhibits in Support of United States' Cross-Motion for Summary Judgment, and the Supplemental Memorandum of Law in Support of United States' Cross-Motion for Summary Judgment on January 9, 2004. On Page 4 February 16, 2004, defendants filed the Response of Defendants to Plaintiff's Supplemental Statement of Facts and Exhibits on United States' Cross-Motion for Summary Judgment, as well as Defendants' Concise Statement of Facts Opposing the United States' Cross Motion for Summary Judgment.

  The court heard testimony and argument on January 21, 2004 and February 25, 2004 on the limited issue of the duress alleged by defendants in seeking to invalidate the waivers they signed, which extended the collection periods on their tax liabilities. At the conclusion of that hearing, the court invited defendants to file a brief on the issue of their entitlement to attorney's fees. The court also invited both parties to submit briefs on the calculation of interest and penalties.

  Pursuant to the court's invitation, plaintiff filed the Supplemental Declaration of Belinda Huber on March 3, 2004. Also on March 3, 2004, defendants filed Defendants' Demand for Attorneys Fees for Defense of Suit by United States, as well as Defendants' Statement Concerning Amounts of Taxes, Penalties and Interest Pursuant to the Court's Instructions. The Government filed the Second Supplemental Declaration of Belinda Huber on March 12, 2004.

  We now deny defendants' motion to dismiss the Complaint and grant plaintiff's cross-motion for summary judgment. Page 5

  FINDINGS OF FACT

  Based on the pleadings, record papers, depositions, declarations and exhibits of the parties, as well as on the evidence presented at the hearings held on January 21, 2004 and February 25, 2004, we make the following findings of fact:

  1. The Historic Strasburg Inn ("Inn") operated as a lodging and entertainment complex in Strasburg, Pennsylvania, consisting of a 103-room hotel, three retail shops, and a restaurant.*fn2

  2. Defendant Robert G. Cook acquired a beneficial interest in the Inn in 1978 by purchasing a controlling share of the stock of Historic Strasburg, Inc. ("HSI").*fn3

  3. Beginning in 1978, Mr. Cook served as President and General Manager of the Inn, overseeing its daily operations; the hiring and firing of employees; the payment of wages; and the withholding of taxes, unemployment, and social security benefits from employee paychecks.*fn4

  4. The amounts withheld from the paychecks of the Inn's employees were not deposited in any separate account.*fn5 Page 6

  5. HSI incurred substantial tax liabilities; and Mr. Cook was personally assessed $319,192.20 for the willful failure to collect, account for, and pay over taxes required to be collected in the tax period ending December 31, 1983.*fn6

  6. On November 21, 1983, Historic Realty, Inc. ("HRI") was formed for the purpose of purchasing and holding the real and personal property of HSI.*fn7

  7. On November 21, 1983, Sharob Associates was formed to operate the business of the Inn, including its restaurant, motel, and shops.*fn8

  8. On November 21, 1983, Sharob Management was formed to manage a country store and an ice cream parlor affiliated with the Inn.*fn9

  9. Robert Cook was the responsible officer of Sharob Associates and Sharob Management from their inceptions to their dissolutions. He maintained ultimate authority over the hiring and firing of employees and determined which of the entities' debts were paid.*fn10 Page 7

  10. Sharob Associates struggled financially, and Mr. Cook used for other purposes funds which should have been used to pay withholding taxes.*fn11

  11. As a result, Sharob Associates incurred federal payroll tax liabilities in 1984 and 1985, reported on Form 941, Employer's Quarterly Federal Tax Return, as follows: Tax Quarter Assessed Tax Federal Tax Assessed Balance, Ending & Penalties Deposits Exclusive of Interest March 1984 $52,520.00 ($0.00) $52,520.00 June 1984 $78,153.76 ($31,992.82) $46,160.94 Sept. 1984 $61, 741.77 ($59,299.42) $2,442 .35 Dec. 1984 $84, 934.99 ($0.00) $84, 934.99 March 1985 $72,643.63 ($0.00) $72,643.63 June 1985 $93,684.05 ($0.00) $93,684.05 Sept. 1985 $78, 979.73 ($0.00) $78, 979.73 Dec. 1985 $103, 714.63 ($0.00) $103, 714.63*fn12 Page 8

  12. Sharob Management also incurred federal payroll tax liabilities in 1984, 1985, and 1986, reported on Form 941, Employer's Quarterly Federal Tax Return, as follows:
Tax Quarter Assessed Tax Federal Tax Assessed Balance, Ending & Penalties Deposits Exclusive of Interest Dec. 1984 $9,566.99 ($6,547.85) $3,019.14 March 1985 $6,271.54 ($4,130.73) $2,140.81 June 1985 $13,037.08 ($7,828.87) $5,208.21 Sept. 1985 $19, 717.62 ($10,844.85) $8,872.77 Dec. 1985 $17,270.38 ($10,902.99) $6,367.39 March 1986 $10,619.27 ($4,670.82) $5,948.45 June 1986 $12,303.88 ($9,383.93) $2,919.95*fn13
  13. On or about January 21, 1986, Robert Cook relinquished his equity and management positions in HRI.*fn14

  14. On or about February 14, 1986, HRI filed for Chapter 11 bankruptcy.*fn15

  15. Robert Cook, individually, HSI, Sharob Management, and Sharob Associates were creditors in the HRI bankruptcy. Page 9 Neither Sharob Associates nor Sharob Management ever filed for bankruptcy.*fn16

  16. Robert Cook entered into a stipulation whereby HSI agreed to receive a $50,000.00 distribution under the reorganization plan, Sharob Associates agreed to receive $30,000.00 plus five percent of the sale of certain property up to $75,000.00, and Robert Cook, HSI, Sharob Associates, and Sharob Management agreed to withdraw all remaining claims against HRI.*fn17

  17. Pursuant to HRI's reorganization plan, the United States had an allowed secured claim of $378,970.38 representing HSI's unpaid federal employment taxes arising prior to November 1983.*fn18

  18. HSI's employment taxes arising prior to November 1983 were paid to the United States through HRI's chapter 11 reorganization plan, and Robert Cook's personal liability for the trust fund taxes incurred prior to November 1983 was abated at the conclusion of the plan.*fn19 Page 10

  19. No agent of the Internal Revenue Service ever lied, or made any affirmative misstatement, to Mr. Cook regarding the HRI bankruptcy.*fn20

  20. On August 25, 1986, a delegate of the Secretary of the Treasury of the United States made an assessment in the amount of $349,054.77 against defendant Robert Cook for the willful failure to collect, truthfully account for, and pay over, the withholding taxes of Sharob Associates.*fn21

  21. On August 3, 1987, a delegate of the Secretary of the Treasury of the United States made an assessment in the amount of $47,764.12 against defendant Robert Cook for the willful failure to collect, truthfully account for, ...


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