United States District Court, Western District of Pennsylvania
LOUIS D. RUSCITTO and CAROL A. RUSCITTO, Plaintiffs,
UNITED STATES OF AMERICA, Defendant.
REPORT AND RECOMMENDATION
ROBERT C. MITCHELL, United States Magistrate Judge.
On December 8, 2013, Defendant, the United States of America (the "Government"), filed a motion for summary judgment. In response, Plaintiffs, Carol and Louis Ruscitto, filed a cross motion for summary judgment on January 20, 2014. Both parties claim that no issue of material fact exists, and that they are entitled to judgment as a matter of law.
After careful review of the parties' cross motions for summary judgment, briefs in support, responses and replies, and upon independent review of the evidence of record, for the following reasons, it is respectfully recommended that Plaintiffs' motion for summary judgment [ECF No. 80] be denied and the Government's motion for summary judgment [ECF No. 77] be granted.
Plaintiff Louis Ruscitto was the president of a construction company named A&L, Inc. ("A&L") that engaged primarily in bonded projects with state and local government agencies in Pennsylvania, Illinois and New York. Pis.' Br. in Supp. of Mot. for Summ. J. [ECF No. 81] at 2. In or about April 2005, A&L began experiencing financial setbacks and in May 2005, A&L entered into a surety agreement with Safeco Insurance Company ("Safeco"). Id. Safeco began financing and controlling the finances on all of A&L's bonded projects. Id. Under the surety agreement, all of A&L's bonded project revenues, which accounted for approximately 75% of A&L's total revenue, expenses and proportionate share of office overhead ran through bank accounts controlled by Safeco. Id. at 2. According to Plaintiffs, Safeco did not authorize certain payment obligations, including A&L's employment tax obligations because Safeco wanted all of A&L's projects to remain "cash neutral, " and did not want to fund expense payments in excess of revenues received. Id. These Safeco-imposed restrictions severely strained A&L's cash flow and its ability to meet its financial obligations, including the payment of its employment taxes. Id. Although A&L was enduring financial hardship, it used its unbonded revenues and funds that Safeco authorized to "pay as much as possible against the federal employment [tax] obligations." Id. at 3 (citing Herron Decl. [ECF No. 85] at ¶ 9). However, A&L failed to remit payment of all of its employment withholding taxes, commonly referred to as "trust fund taxes." Id. at 2. Under the Internal Revenue Code, if a company fails to pay such withholding taxes, the IRS may assess trust fund recovery penalties against the person or persons responsible for collecting, accounting for, and paying over such taxes. See 26 U.S.C. § 6672.
Due to A&L's failure to withhold the employment taxes, the IRS conducted an investigation as to the nonpayment of the trust fund amounts and made the determination that Louis Ruscitto was responsible for collecting, accounting for, and paying over the employment withholding taxes and that he willfully failed to do so. Def.'s Br. in Supp. of Mot. for Summ. J. [ECF No. 78] at 2. On March 30, 2009, the IRS assessed trust fund recovery penalties against Louis Ruscitto for three tax periods: the taxable quarters ending: (1) September 30, 2005; (2) December 31, 2005; and (3) March 30, 2006. Id.
Subsequently, in or around May 2009, Plaintiffs filed an amended income tax return using Form 1040X for the 2003 income tax year, reporting an overpayment of tax due to a net operating loss carryback from A&L. Id. The IRS applied part of the overpayment to Louis Ruscitto's trust fund liability which fully satisfied the amount owed under the trust. Id. The remainder of the 2003 overpayment, totaling approximately $89, 000, was refunded to Plaintiffs in 2009. Id.
Plaintiffs filed suit against the Government for the trust fund recovery penalty assessed to Louis Ruscitto and the misapplication of the overpayment. They claim that the trust fund penalty should not have been assessed to Louis Ruscitto because he was neither a person responsible for A&L's tax obligation, nor was he willful in failing to pay it under 26 U.S.C. § 6672. Pis.' Br. in Supp. of Mot. for Summ. J. [ECF No. 81] at 6. Plaintiffs also claim that the IRS misapplied the 2003 income tax overpayment to satisfy the trust fund recovery penalties and that Carol Ruscitto is entitled to a portion of the overpayment. Id. at 9-12. Both parties move for summary judgment on these claims. The Government argues that Louis Ruscitto was properly assessed the trust fund recovery penalties, that it properly applied the 2003 tax refund to the trust fund, and Carol Ruscitto is not entitled to a portion of the overpayment. Def.'s Br. in Supp. of Mot. for Summ. J. [ECF No. 78] at 5-14.
B. Standard of Review
Under Federal Rule of Civil Procedure 56, summary judgment is appropriate if "there is no genuine issue as to any material fact and ... the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). A moving party is entitled to summary judgment if he demonstrates that "the nonmoving party has failed to make a sufficient showing of an essential element of [his] case." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). The nonmoving party bears the burden of adducing palpable evidence "establishing that there is a genuine factual dispute for trial" and may not merely rely upon "bare assertions or conclusory allegations" to survive summary judgment. Hogan v. Twp. of Haddon, 278 Fed.App'x 98, 101 (3d Cir. 2008) (citing Fireman's Ins. Co. v. DuFresne, 676 F.2d 965, 969 (3d Cir. 1982)). "A motion for summary judgment will not be defeated by 'the mere existence' of some disputed facts, but will be denied [only] when there is a genuine issue of material fact." Am. Eagle Outfitters v. Lyle & Scott Ltd., 584 F.3d 575, 581 (3d Cir. 2009) (quoting Anderson v. Liberty Lobby, Inc., 411 U.S. 242, 247-48 (1986)). "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). The court should draw inferences "in the light most favorable to the non-moving party, and where the non-moving party's evidence contradicts the movant's, then the non-movant's must be taken as true." Big Apple BMW of N. Am., Inc., 974 F.2d 1358, 1363 (3d Cir. 1992) cert, denied507 U.S. 912 (1993).
Cross motions for summary judgment are
no more than a claim by each side that it alone is entitled to summary judgment, and the making of such inherently contradictory claims does not constitute an agreement that if one is rejected the other is necessarily justified or that the losing party waives judicial ...