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St. Paul Cathedral School v. United States

December 5, 2008


The opinion of the court was delivered by: Robert H. Whaley Chief United States District Judge


Before the Court is Defendant's Motion for Summary Judgment (Ct. Rec. 26). A hearing on this motion was held on October 22, 2008. Kevan Montoya appeared on behalf of Plaintiff; Jennifer Auchterlonie appeared on behalf of Defendant.

Plaintiff seeks a refund of penalties the IRS collected from Plaintiff for failure to: (1) make timely deposits towards its liabilities for federal employment taxes; (2) timely pay those liabilities; and (3) timely file federal employment tax returns. Plaintiff does not dispute these failures; rather, Plaintiff asserts an affirmative defense provided by statute, arguing that Plaintiff is entitled to a refund because the failures were "due to reasonable cause and not due to willful neglect."

26 U.S.C. §§ 6651(a)(1), (2), and 6656(a).*fn1 Plaintiff's argument was unsuccessful at the administrative level; Plaintiff's final appeal was denied on November 14, 2006, and this suit followed.

Now Defendant moves the Court to find as a matter of law that Plaintiff is not entitled to the refund it seeks. In response, Plaintiff submits a number of declarations and other evidence, asking the Court to find that a genuine issue of material fact exists as to whether the failures were due to reasonable cause. Defendant moves to strike some of Plaintiff's proffered evidence and arguments on various procedural grounds.

I. Facts

Unless otherwise noted, the following facts are undisputed.

Plaintiff is a private, nonprofit Catholic school that is part of St. Paul Cathedral Parish in Yakima, Washington. During the quarterly periods beginning October 1, 2003, and ending June 30, 2005, Plaintiff failed to timely file federal employment tax returns and failed to make timely deposits and to timely pay its federal employment tax liabilities. As a result, the IRS assessed a total of $90,444.74 in penalties against Plaintiff.

During all relevant periods, Plaintiff employed a bookkeeper named Sandra Page, who was responsible for financial duties including paying employment taxes and filing tax returns. Sometime after her hiring, her supervisors were informed of a criminal case against Ms. Page, but took no action because they believed the allegation to be unsubstantiated. Unknown to her employers, Ms. Page had a number of convictions for theft and forgery, including one conviction that occurred during her employment with Plaintiff. During the discovery phase of this litigation, Plaintiff hired a forensic accountant who reports that Ms. Page misappropriated $240,049.18 during her five years of employment with Plaintiff. Ms. Page's employment was terminated on March 20, 2008.

Ms. Page's direct supervisor was the principal of the school, a position filled by two different individuals during the periods at issue. Sister Tonia Wanecek was principal until July 2004*fn2 ; Anne Berg was principal through the rest of the relevant period. Among other duties, the principals oversaw Ms. Page's work; however, Ms. Page was left solely responsible for the bookkeeping, preparation of financial reports, withholding taxes, and filing appropriate tax returns. The school also had help from a volunteer Certified Public Accountant named Chris Rivard, who worked closely with Ms. Page and had access to all of Plaintiff's accounting records. Mr. Rivard is the accountant for the Diocese of Yakima, of which Plaintiff is a part. Plaintiff's financial status was also reviewed regularly by both the Diocese and a school finance committee.

The principals were hired by and reported to Monsignor John A. Ecker, the Pastor of St. Paul Cathedral Parish. The parties dispute the scope of Msgr. Ecker's duties as Pastor, though both parties acknowledge that Msgr. Ecker "oversees" Plaintiff. Plaintiff states that Msgr. Ecker merely ensures that "the Cathedral and [Plaintiff] are operating within the doctrine of the Catholic Church," but "does not oversee the day-to-day operation of [Plaintiff]" (Plaintiff's Statement of Facts, ¶ 4).*fn3 Defendant maintains that Msgr. Ecker "has ultimate decision-making authority on all matters with respect to [Plaintiff]" and "was responsible for overseeing the administration of [Plaintiff]... including financial issues" (Defendant's Statement of Facts, ¶¶ 3, 4). Regardless of this dispute, Msgr. Ecker's own declaration establishes that during the relevant periods he oversaw the financial health and status of the school, and regularly discussed those topics with both principals, Ms. Page, and even Mr. Rivard.

The parties also dispute Plaintiff's financial health during the periods in question. Defendant maintains that Plaintiff had multiple bank accounts that were well in the black during all relevant periods. Plaintiff cites its forensic accountant's calculations that, at best, Plaintiff would have ran out of money by March 2005 had it actually paid the taxes at issue.*fn4

II. Standard of Review

Summary judgment shall be granted when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is (1) no genuine issue as to (2) any material fact and that (3) the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). When considering a motion for summary judgment, a court may neither weigh the evidence nor assess credibility; instead, "the evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in his favor." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). A "material fact" is determined by the substantive law regarding the legal elements of a claim. Id. at 248. If a fact will affect the outcome of the litigation and requires a trial to resolve the parties' differing versions of the truth, then it is material. S.E.C. v. Seaboard Corp., 677 F.2d 1301, 1305-06 (9th Cir. 1982). A dispute about a material fact is "genuine" if the evidence is such that a reasonable jury could return a verdict for the nonmoving party. Liberty Lobby, 477 U.S. at 248.

The moving party has the burden of showing the absence of a genuine issue as to any material fact. Adickes v. S. H. Kress & Co., 398 U.S. 144, 157 (1970). In accord with Rules of Civil Procedure 56(e), a party opposing a properly supported motion for summary judgment "may not rest upon the mere allegations or denials of his pleading, but... must set forth specific facts showing that there is a genuine issue for trial." Id. Summary judgment is appropriate only when the facts are fully developed and the issues clearly presented. Anderson v. American Auto. Ass'n, 454 F.2d 1240, 1242 (9th Cir. 1972). "Rule 56(c) mandates the entry of summary judgment against a party who fails to make a showing sufficient to ...

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