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Stranahan v. United States

August 19, 2010


The opinion of the court was delivered by: Padova, J.


Plaintiff Craig Stranahan commenced this action seeking relief from an allegedly improperly assessed Trust Fund Recovery Penalty pursuant to Section 6672(a) of the Internal Revenue Code. The United States has counterclaimed for failure to pay federal employment taxes. Presently before the Court are the Government's Motion for Summary Judgment and Plaintiff's Motion for Judgment on the Pleadings, which Plaintiff has requested we treat as a summary judgment motion. For the reasons stated below, both Motions are denied.


Plaintiff was the president of the Pennsylvania Gear Corporation ("Pennsylvania Gear") from at least January 1, 2002, to December 30, 2002. (Craig Stranahan Dep. at 33.) Towards the end of 2002, Pennsylvania Gear sought bankruptcy protection in the Eastern District of Pennsylvania pursuant to Chapter 11 of the Bankruptcy Code, and on December 16, 2002, it filed Bankruptcy Schedules, a List of Equity Security Holders, and a Statement of Financial Affairs, which Plaintiff signed. (Gov't Ex. 201.) Bankruptcy Schedule E, which listed creditors holding unsecured priority claims, identified the IRS as holding a claim for $45,095. (Id. at 12.) On December 30, 2002, the bankruptcy case was involuntarily converted to a Chapter 7 liquidation. (Pl.'s Ex. 104). Plaintiff was instructed to turn over all records and assets to the bankruptcy trustee. (Henry Stranahan Dep. at 52.)

After Pennsylvania Gear filed for bankruptcy and before the case was converted to a Chapter 7 liquidation, Plaintiff signed several Pennsylvania Gear checks. One such check, dated December 27, 2002, was payable to cash in the amount of $43,600, and included the notation "H&W Associates" in the memo field. (Gov't Ex. 301 at 1, 5.) The checks were paid from Pennsylvania Gear's checking account at Commerce Bank. (Id.) After the check for $43,600 was paid, Pennsylvania Gear's checking account at Commerce Bank had a balance of $52.11. (Id. at 1.)

The bankruptcy trustee filed a series of adversary complaints against several entities, including H&W Associates. (Pl.'s Ex. 106 ¶ 1.) On January 8, 2008, the bankruptcy trustee executed a settlement agreement with H&W Associates, Henry Stranahan, Stranahan Charitable Trust, Stranahan Family Business Partnership, L.P., and Pennsylvania Manufacturing Technologies, Inc. (the "Settling Defendants"). (Id.) Pursuant to the Settlement Agreement, the Settling Defendants agreed to forward the sum of $40,000.00 to the bankruptcy trustee. (Id. ¶ 4.) The parties also agreed that the bankruptcy estate would "make distributions to creditors, including any timely filed and valid tax claims by the IRS and other Governmental Units, pursuant to Section 726 of the Bankruptcy Code." (Id. ¶ 5.) The Settling Defendants and the bankruptcy trustee further agreed to release one another "from any and all claims, actions, liabilities, debts, acts and omissions, causes of action, legal proceedings and executions of any type whatsoever. . . ." (Id. ¶ 6.)

On July 25, 2007, pursuant to 26 U.S.C. § 6672, the IRS assessed a civil penalty against Plaintiff for unpaid trust fund taxes for the third and fourth quarters of 2002. (Gov't Exs. 101-03.) The initial penalties were in the amounts of $7,355.86 for the third quarter of 2002, and $33,501.05 for the fourth quarter of 2002. (Id.) As of June 21, 2010, Plaintiff owed $45,130.69 on account of the trust fund recovery penalty. (Gov't Ex. 103.)

Plaintiff commenced the instant action on June 16, 2009. He alleges that the Government improperly assessed the Trust Fund Recovery Penalty against him. On October 1, 2009, the Government counterclaimed for failure to pay federal employment taxes.


Summary judgment is appropriate "if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c)(2). An issue is "genuine" if "the evidence is such that a reasonable jury could return a verdict for the non-moving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A factual dispute is "material" if it "might affect the outcome of the suit under the governing law." Id.

"[A] party seeking summary judgment always bears the initial responsibility for informing the district court of the basis for its motion, and identifying those portions of [the record that] it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Where the non-moving party bears the burden of proof on a particular issue at trial, the movant's initial Celotex burden can be met simply by "pointing out to the district court [] that there is an absence of evidence to support the non-moving party's case." Id. at 325. After the moving party has met its initial burden, the adverse party's response "must -- by affidavits or otherwise as provided in this rule -- set forth specific facts showing a genuine issue for trial." Fed. R. Civ. P. 56(e)(2). That is, summary judgment is appropriate if the non-moving party fails to rebut by making a factual showing "sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex, 477 U.S. at 322.

"In evaluating the evidence, we take the facts in the light most favorable to the nonmoving party . . . and draw all reasonable inferences in [her] favor." Morton Int'l, Inc. v. A.E. Staley Mfg. Co., 343 F.3d 669, 680 (3d Cir. 2003) (internal quotation omitted). "Speculation, conclusory allegations, and mere denials are insufficient to raise genuine issues of material fact." Boykins v. Lucent Techs., Inc., 78 F. Supp. 2d 402, 407 (E.D. Pa. 2000). Indeed, evidence introduced to defeat or support a motion for summary judgment must be capable of being admissible at trial. Callahan v. AEV, Inc., 182 F.3d 237, 252 n.11 (3d Cir. 1999) (citing Petruzzi's IGA Supermarkets, Inc. v. Darling-Delaware Co., 998 F.2d 1224, 1234 n.9 (3d Cir. 1993)).*fn1


In its Motion for Summary Judgment, the Government argues that it is entitled to judgment in its favor because Plaintiff was responsible for paying over Pennsylvania Gear's trust fund taxes in the third and fourth quarters of 2002 but willfully failed to do so, choosing instead to use Pennsylvania Gear's funds to make other payments at a time when he knew the taxes had not been paid. In his Motion, Plaintiff argues that he is entitled to judgment in his favor because he has presented evidence that he did not violate section 6672 of the Internal Revenue Code, but rather truthfully reported Pennsylvania Gear's payroll tax obligation in that company's bankruptcy schedules. He further ...

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